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ECO100Y Pesando- The Economic Way of Thinking-Chapter1,2

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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 like
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