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Topic 1 - The Economic Way of Thinking Opportunity Cost

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James Pesando

Topic 1The Economic Way of ThinkingththWeek One Sep 13Sep 17thSep 13ScarcityOpportunity Cost ScarcityIndividual limited budget limited timeSociety limited resources to produce goods Economics the study of how rational people make choicesthe study of how society managers its scarce resources Scarcity leads to Choices leads to Economics the study of making choices 1 Opportunity Costwhat one forgoes by not taking the best next alternativewhatever must be given up to obtain some item Insightsa The question Should I do X should be replaced byShould I do X or Y where Y is the most highly valued alternative to X b Includes Time Cost as well as money costeg1 What is the OC of attending University for one year 8000 if the next best alternative is working fulltime at 20000yrOpportunity CostTuitionsBooksForgone Earnings800020000 The Opportunity Cost of spending 1 is 1 you could use the same dollar to buy other goods or serviceseg2 What is the OC of attending a 2hr movie ticket 12 if a the next best alternative is working a PT job at 10hr OCTicket PriceForgone Earnings122032 b the next best alternative is going for a walk OCTicket Pricethe Satisfaction from the walk no monetary value but the satisfaction from the walk apparently exceeds 2000 by implicationeg3 someone operates a hotdog stand with a Revenue from an 8hr day 100 hotdogs x 25hotdog250 b Cost of an 8hr day Rent75Profit100 buns hotdogs25Total Cost100NOW should one continues operating the hotdog stand if a The next best alternative is working at 15hr No 15 X 8120 greater than 100 b The next best alternative is working at 10hr Yes 10 X 880 less than 100 cWhy do few medical doctors operate hot dog stands Since medical doctors are the highestearning professions in Canada the opportunity cost of their time is too high for them operate hotdog stands ECO100Y1PesandoNotes edited by Eva Wu
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