ECO100Y1 Lecture : good notes
Document Summary
Opportunity cost of taking an action: what you forgo (give up) by not taking the next best alternative. The question, should i do z? should be replaced by: should i do x or y, where y is the next best alternative to x? . If the opportunity cost of taking an action is high, you may choose not to take the action. Example 1: you decide to go out for dinner, which costs . Your next best alternative is to attend a concert, which you value at . The cost of a ticket to the concert is . What is the opportunity cost of going out to dinner: , , , , none of the above. What is the opportunity cost if you value the dinner at : , , , , none of the above. Next best alternative (monetary value) - (direct cost) The value you assign to the dinner does not affect its opportunity cost.
