MGEA02H3 Lecture Notes - Lecture 1: Opportunity Cost

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MGEA02 – Lecture 1 – Opportunity Cost; Production Possibilities Frontier
Microeconomics – The study of individual markets in the economy
Economics – Social science that studies production, distribution, and consumption of goods and
services
oHow people make choices under conditions of scarcity and the outcome of those
choices
Resources
Land –Natural resources, water, air, etc.
Labour - workers
Capital (Equipment) – physical machinery, tools buildings, etc.
oThese resources are scarce relative to what’s needed and therefore choices need to
be made
Opportunity Cost
The cost of taking an option/action is measured by the value of the next best alternative
option
oThe road not taken
oBased on scarcity of resources
The value of the benefit that could have been generated.
oEx. The opportunity cost of going to university would be the ability to produce income
(working). Also, paying for residence if you were living at home before
oApartment rental, food , and entertainment costs are only a part of the opportunity
cost if they change
Decisions are made according to opportunity cost.
oThe opportunity cost of student’s time during the day is very low that’s why we can go
to class during the day. Whereas the value of time for adults is higher during the day,
which is why most adults would be seen in evening classes.
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Document Summary

Mgea02 lecture 1 opportunity cost; production possibilities frontier. Microeconomics the study of individual markets in the economy. Economics social science that studies production, distribution, and consumption of goods and services: how people make choices under conditions of scarcity and the outcome of those choices. Capital (equipment) physical machinery, tools buildings, etc: these resources are scarce relative to what"s needed and therefore choices need to be made. The cost of taking an option/action is measured by the value of the next best alternative option: the road not taken, based on scarcity of resources. The value of the benefit that could have been generated: ex. The opportunity cost of going to university would be the ability to produce income (working). Also, paying for residence if you were living at home before: apartment rental, food , and entertainment costs are only a part of the opportunity cost if they change.

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