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Jack Carr (83)

The Economics Way of Thinking

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University of Toronto St. George
Jack Carr

Topic 1 - The Economic Way of Thinking th th (Week One Sep 13 J Sep 17 ) th Sep 13 J Scarcity & Opportunity Cost Scarcity: Individual: limited budget; limited time Society: limited resources to produce goods Economics: the study of how rational people make choices; the study of how society managers its scarce resources; Scarcityleads to Choices leads to Economics (the study of making choices). 1. Opportunity Cost: what one forgoes by not taking the best next alternative; whatever must be given up to obtain some item; Insights: :@ZZ]}L^^Z}o}O_ZZ}oreplaced by ^^Z}o}O}zZz]ZZK}ZZ]2ZoooL]}O_ :L oZ^@]K }Z_ZooZK}L }Z e.g.1. What is the OC of attending University for one year ($8,000) if the next best alternative is working full-time at $20,000yr? Opportunity Cost = TuitionsBooks + Forgone Earnings = $8000+$20,000 The Opportunity Cost of spending $1 is $1 (you could use the same dollar to buy other goods or services); e.g.2 What is the OC of attending a 2-hr movie (ticket $12) if: a). the next best alternative is working a PT job at $10hr OC=Ticket Price + Forgone Earnings = $12 + $20 = $32; b). the next best alternative is going for a walk OC=Ticket Price + the Satisfaction from the walk (no monetary value) (but the satisfaction from the walk apparently exceeds $20.00, by implication); e.g.3 someone operates a hotdog stand with: a. Revenue from an 8-hr day: 100 hotdogs x $2.5hotdog = $250; b. Cost of an 8-hr day: Rent-$75; Profit = $100 buns, hotdogs = $25; Total Cost = $100; NOW should one continues operating the hotdog stand if: a). The next best alternative is working at $15hr? No, $15 X 8 = $120 greater than $100; b). The next best alternative is working at $10hr? Yes, $10 X 8 = $80 less than $100. c).Why do few medical doctors operate hot dog stands? Since medical doctors are the highest-earning professions in Canada, the opportunity cost of their time is too high for them operate hotdog stands. ECO100Y1-Pesando-Notes edited by Eva Wu
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