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Lecture 3

ECO105Y1 Lecture 3: Chapter #3 Notes


Department
Economics
Course Code
ECO105Y1
Professor
Cohen
Lecture
3

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Chapter #3 : Supply
3.1 - Supply starts with decision makers comparing expected benefits and costs at margin
- Marginal Cost : additional opportunity cost of increasing quantity supplied, changing
with circumstance
- the cost added by producing one additional unit of a product or service.
- Opportunity cost of alternate uses of your time
- Shifting time from freetime to working time increases the marginal cost
- The real cost of any input in determined by the the best alternative cost of that input
Refresh
1. Marginal costs are the same as opportunity costs, except it highlights the cost of
increasing quantity supplied
2. These XBOXs may have had special features or benefits, and their scarcity made it
appealing, justifying consumers to pay the extra money.
3. A recession may cost Paula to decrease how much she pays her workers, as she’ll have
to buy all her products at a higher cost, and if she charges consumers too much she
won’t have any customers.
3.2 - Past expenses are not marginal/opportunity costs, they have already been made
- Sunk costs : past expenses that cannot be recovered
Refresh
1. Because they have been done in the past and would have been made regardless of the
decision you have to make now.
2. If you cannot return it or sell it to get some money back, yes.
3. I would always go with my friend. I’ve paid the fare anyways so it's a sunk cost. Its more
likely my friend will get me there faster, and its more fun to be with a friend in a
comfortable car than on a bus alone.
3.3 - Supply : the willingness of a business to produce a particular product/service because
the price covers all opportunity costs
- Quantity Supplied : the quantity you plan to supply at a given price
- Marginal opportunity cost : complete term for any cost of a decision
- As supply is increased, so does marginal cost, and so will price of product
- Market Supply : sum of supplies of all businesses willing to provide a product/service
- Law of Supply : if price of product/service increases , quantity supplied increases
- Supply Curve : shows relationship between price and supply
- Price -> over down -> supply
- Supply -> up over -> price
Refresh
1. Because she is giving up a lot of nail jobs, so she wants compensation for the
opportunity cost
2. $5
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