ECON 1050 Lecture Notes - Lecture 10: Opportunity Cost
21 Dec 2016
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* inefficient, ability to make more with same resources. Analogy: if you were to have a farm with enough land to either build 4 houses or grow enough grapes to make. Opportunity cost of (cid:498)houses(cid:499) and (cid:498)bottles(cid:499) are reciprocals of one another. (cid:498)houses(cid:499) and (cid:498)bottles(cid:499) both have a face value in dollar amounts. If one (cid:498)bottle(cid:499) has a cost of (cid:882) then a (cid:498)house(cid:499) has a value of (cid:884)5,(cid:882)(cid:882)(cid:882) Every house built reduces the amount of grapes, reducing number of bottles, reducing income. A bowed out possibility curve gives opportunity cost of whatever product that"s on it"s the reciprocals) horizontal axis (for vertical axis. How much did it cost to make an item is related to the opportunity cost of what wasn"t made. Exceeds what society says it costs to make. Cost of product is equal to the willingness to pay. If opportunity cost is going up the other is going down.
