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Thinking About Costs:
•Choosing one alternative means giving up another alternative = costs (Opportunity cost)
•Cost is a constraint on an action
•No free anything – Everything has a cost
•Money is just one means of measuring cost
•Why do poor people ride buses and the rich fly?
oRich person’s time is more valuable
•Why is the rich person’s time more valuable?
oBecause they can do more (defined by market)
•Why do men/women forgo asking the other sex out on a date?
oFear of rejection (which is a cost)
Thinking About the Margin of Cost:
•It is the additional cost – Marginal cost – That is important when we consider a course of
•Economists don’t think in absolute terms; actions depend on extra costs and benefits
•Costs rise as production of any good or service rises. But you also need incentives to
elicit more supply
Law of Demand:
•Strongest possible predictive statement about human behaviour
oExample: Going to church (or any other religious institution)
(a) time; (b) contribution – If they increase, demand falls
oExample: Dating – What if women collude to increase “price”? Will more or less
dating occur? (Will some women cheat and accept a “lower price”?)
oExample: Speeding and fines