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Econ Lecture 1

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James Pesando

Description download syllabus, announcements, etc assignments and lecture outline: user: pesando pass: windsor lectures Mondays and Wednesdays Friday = reserve day (catch up, extra stuff etc) The economics way of thinking (week 1) (download) 1) the economic problem: scarcity requires choices 2) economic decision making 1 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 – two concepts that aid in LOGICAL THINKING IN ECONOMIC CONTEXT 2) apparently non economics problems ARE economic problems opportunity cost 1) examples 2) Applications Opportunity Cost The opportunity cost of an action is what one forgoes (gives 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 to X?” 2) Opportunity cost includes time cost as well as money cost. (class examples emphasize this fact.) Example 1: The opportunity cost of attending a concert 1) if the best alternative is working part-time, at $20.00 per hour Ticket Price: $50.00 Forgone Earnings: $60.00 (3 hour concert) $110.00 2 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 or services) Example 2: Jack and Jill are good students, but undecided about attending university. After graduating from high school, Jack is offered a job that pays $25,000 per year, while Jill is offered a job that pays $50,000 per year Who is more likely to go to university, if the next best alternative is to work? Opportunity Cost Jack Jill Tuition/Books $15,000 $15,000 Foregone Income $25,000 $50,000 $40,000 $65,000 Answer: JACK -- INSIGHT If the opportunity cost of taking an action is high, the action is less likely to be taken. --- Appli
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