Mankiw's Principles of Microeconomics Chapter 22

This is the last chapter in the course.  I hope you have enjoyed the course and are saddened to see it end.  What concepts or theories did you find most interesting and/or useful?  Is there an area where you changed your thinking?

What I found most interesting about this last chapter is that the motives of people are not always transparent. Take for example the section on behavioral economics. Two of the principles of economics are that people think at the margin, and most people respond to incentives. Behavioral economics proves that people are not always as rational as you may think, and there may be other incentives the person is working towards other than the profit maximizing outcome. 

Take for example the issue of the fiscal cliff our nation is facing. With 22 days left in the year both parties are steadfast in their views of how to solve this problem. Even with the election behind us, politicians are still sticking to their respective party’s opinions, even if those opinions are not in the best interest of the country overall. For politicians, it’s not about what’s fair, it’s about showing your constituents that you stood by their views until the very end, in hopes that when your re-election bid comes up the voters will remember what you stood for. Many people are angered that we’re so close to the end of the year and we don’t have a deal yet; however, I find it amusing that the general public really thinks a deal is possible in anything prior to the 11th hour with our government. 

In my opinion, the presidential election proved that society cares about equality, and with that in mind the concept of fairness should be what molds the future of our economic policy. 

Mankiw's Principles of Microeconomics Chapter 21

This is a complicated chapter.  What did you find most confusing?  What do you think about the concept of indifference curves in the context of budget constraints?

“I can get no remedy against this consumption of the purse: borrowing only lingers and lingers it out, but the disease is incurable.” -Shakespeare

We are a nation of consumers. Even though we may not want to admit it, most of us wish to consume more of the luxuries of life with little to no trade off. The headwinds against consumption are our preferences and our budgetary constraints. In this chapter we define and graph the consumer’s budget constraints. We also measure the preferences of the consumer through indifference curves. An indifference curve is a curve that shows consumption bundles that give the consumer the same level of satisfaction. We can utilize the slope of the indifference curve to determine the rate at which a consumer would trade one good for another, otherwise known as the marginal rate of substitution (MRS). 

A consumer’s choice is dependent on his budget constraint and his preferences for consumption. If we were to display this graphically, the optimum point of consumption would at the point which the indifference curve is tangent to the budget constraint. For the consumer to obtain maximum consumption, he would need choose the point at which the MRS= relative price (rate at which the market would trade one good for another).

Shifts in income can impact the budget constraints line shifting it outward. This shift leads to increase consumption since the consumer will most likely choose the higher indifference curve.

The most confusing part of this chapter for me was trying to find out why there are 2 indifference curves in every example. From my understanding, indifference curves represent different combinations of bundles the consumer could have. If each graph has 1 budget constraint, because there’s only one income, then wouldn't there only be 1 indifference curve, because there’s only one consumer?