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Lecture

ECO101H1 Lecture Notes - Marginalism, Opportunity Cost


Department
Economics
Course Code
ECO101H1
Professor
James Pesando

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The Economic Way of Thinking-
Chapter 1, 2
1. The Economic Problem
Scarcity
- Individual Limited budget
- Limited time
Society
- Limited resources to produce goods
Choices
Economics: Study of how rational people make choices.
Insights:
1. Opportunity cost and Marginal analysis
Logical thinking in economic context
2. Apparently “non-economic” problems are economic problems.
Opportunity Cost
The Opportunity Cost of an action is what one forgoes (give up) by
not taking the best alternative action.
Insights:
(1)The question: “Should I do X?” should be replaced by “should I
do X or Y where Y is the most highly valued alternative action”
Example:
The opportunity cost of attending a concert
(1)If the best alternative is working part-time, at $20.00/hr
Ticket price: $50.00
Forgone Earnings: $60.00
(3 hour concert)
$110.00
(2)If the next best alternative is riding your bicycle
Ticket price $50.00
Satisfaction from
Riding Bicycle: More than 60.00 (since you prefer riding your bicycle
to working part-time. more than $110.00)
Remember
The opportunity cost of spending $1 is $1 (since you could spend on
other goods/services)
After graduating from high school, Jack finds a job $25000/yr ; Jill
finds a job $50000/yr
Who is more likely to go to university, if the next best alternative is
to work.
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