ECON 1BB3 Lecture 1: ECON 1BB3- Chapter 2

• School: McMaster University
• Department: Economics
• Course: ECON 1BB3
• Professor: Bridget O' Shaughnessy

Document Summary

Opportunity cost- the value of the best alternative forgone when an item or activity is chosen. Opportunity cost may be subjective, but money paid for goods and services is a reasonable approximation. Sunk cost and choice- sunk cost is a cost that has already been incurred and cannot be recovered, and thus should be irrelevant/ignored for present and future economic decisions. The law of comparative advantage- the individual, firm, region, or country with the lowest opportunity cost of producing a specific good should specialize in that good. Absolute advantage versus comparative advantage- absolute advantage is when the ability to make something using fewer resources than other producers use. Even though absolute advantages exist, comparative advantages (the ability to make something at a lower opportunity cost than other producers face) calls for you to specializing in the one task which has the lowest opportunity cost.