Changes

Here are some common mistakes or misunderstandings that your Instructor has seen on homework:

Here are some common mistakes or misunderstandings that your Instructor has seen on homework:

*a "transaction cost" is not the overall cost of the transaction.  It is the portion of the overall cost that is due to "friction", or the time and expense of obtaining what you really want from the transaction.  Examples include tips, taxes, commissions, salesmen, broker fees, gas to drive there, etc.

*a '''transaction cost''' is not the overall cost of the transaction.  It has nothing to do with the price, but is the portion of the overall cost that is due to "friction", or the time and expense of obtaining what you really want from the transaction.  Examples include tips, taxes, commissions, salesmen, broker fees, gas to drive there, etc.

*a "variable cost" is not a cost that varies with demand.  It is a cost of a firm that varies with output.  It is a cost that grows bigger as the number of units made grow bigger, such as electricity for staying open later, printing charges for making more copies of lectures, gas costs for taking more taxicab rides, etc.

*a '''variable cost''' is not a cost that varies with demand.  It is a production cost to a firm that varies with output.  It is a cost that grows bigger as the number of units made grow bigger, such as more electricity for staying open later, more paper and ink costs for making more copies of lectures, higher gas costs for taking more taxicab rides, etc.

*"Returns to scale" is in the "long run" and has nothing to do with "marginal" effects.  There are not "diminishing" returns to scale like "diminishing marginal utilitym" which suggests a rapidly declining rate.  Instead, there are "decreasing" returns to scale.

*'''Returns to scale''' is in the "long run" and has nothing to do with "marginal" effects.  There are not "diminishing" returns to scale like "diminishing marginal utility" which suggests a rapidly declining rate.  Instead, there are "decreasing" returns to scale.

*In calculating overall utility, keep in mind in which order someone chooses to maximize his marginal utility.  Exam questions might ask how someone specifically spent his third hour of time based on assumptions about how the utility for different activities diminish over time.

*In calculating '''overall utility''', keep in mind in which order someone chooses to maximize his marginal utility.  Exam questions might ask how someone specifically spent his third hour of time based on assumptions about how the utility for different activities diminish over time.

*the concept of "marginal product" is specific to an input, as in "marginal product of labor," which is the additional overall output (product) produced due to an additional unit of that input (labor).

*the concept of '''marginal product''' is specific to an input, as in "marginal product of labor," which is the additional overall output (product) produced due to an additional unit of that input (labor).

*speaking of inputs, we might as well include this concept:  "factors of production." These include the four basic resources for a firm or company:  land, labor, capital and entrepreneurship.  Exam questions typically ask most about the input of labor for a firm or company

*speaking of inputs, we might as well include this concept:  '''factors of production.''' These include the four basic resources for a firm or company:  land, labor, capital and entrepreneurship.  Exam questions typically ask most about the input of labor for a firm or company

== Example 1: Economic Insights into Politics ==

== Example 1: Economic Insights into Politics ==