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[ECO100Y1] - Final Exam Guide - Ultimate 24 pages long Study Guide!Premium

24 pages688 viewsFall 2016

Department
Economics
Course Code
ECO100Y1
Professor
James Pesando
Study Guide
Final

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UTSG
ECO100Y1
FINAL EXAM
STUDY GUIDE
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September 12-First lesson
Scarcity: Fundamental economic problem
Individual:
Limited budget
Limited time
Society:
Limited resources to produce goods
In the presence of scarcity we have to make choices.
Problem of scarcity: implies that we must make choices, both individual and society as a whole
Scarcity forces us to make choices
Economics: study of how rational people make choices
Ex. You buy, in advance, a ticket for a hockey game at the discounted price of 75$. As planned you take a
taxi to the game, 40$. When you arrive, you discover that you have lost the ticket.
Question: Assuming you have $, should you buy a new ticket, which cost 100$?
Observations:
1. This is an "economics" problem
2. If you are rational, there is a "correct" answer
Rational (economic) decision making
Two building blocks:
1. Opportunity cost
2. Marginal Analysis
1. OPPORTUNITY COST: The opp cost of an action is what one forgoes (gives up) by not
taking the BEST alternative action.
Insight: to identify the opp cost of taking an action, one must identify the next best alternative.
The opp cost of spending 1$ is 1$ (since you could spend this dollar on other goods or services).
Obvervations:
opp cost includes time costs as well as money costs (class examples emphasize this fact)
If the opp cost of an action is high, one is less likely to take the action
Ex: You choose to attend a hockey game, and the ticket price is 75$. What is opp cost?
Answer: the next best alternative is to work for 2 hours and earn 50$, the opp cost is 125$ (75$ that you
didn’t spend plus 50$)
Answer: if your next best alternative is to walk in the park, which you value at 60$ (and which is free),
the opp cost is 135$ (75 + 60)
Ex.2 In 2002, you bought a rare book for 200$.
In 2010, you could of sold the book for 500$
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Today, you could sell the book for 100$
If you decide to give the book to a friend, and the next best alternative is to sell it, what is the opp cost
of your gift?
SO today its worth 100$ and you give It to a friend today so instead of giving it to a friend you could of
sold it for 100$
0
200
500
100
Explanation:
1. What you paid in 2002, or what you have sold the book in 2010 are NOT relevant
2. The opp cost is not zero (although you own the book), since you could sell the book
today for 100$ and this is your next best alternative
Ex.3 In 2014, the U.S economy recovered from a deep recession and unemployment fell sharply
Question: Would you predict that the number of students enrolling in U.S universities increased, fell, or
was unchanged in Sep 2014 compared to Sep 2013
Insights:
1. One must idenfity the opp cost of attending uni and how this opp cost changes if
unemployment falls (and job opp increase)
2. If the opp cost of taking an action increases, the action is less likely to be taken
Explanation: identify opp cost of attending uni for one year
1. If the next best alternative is full time work at 30,000$ per year. Tuition/books= $15,000
Foregone earnings=$30,000
Total= 45,000$
1. If the next best alternative is to work full time, but no work is available (due to high
unemployment)
Tuition/books=15,000$
Foregone earnings=NIL
Total=15,000$
Result: University enrollment falls in sep 2014.
-For many employment is the next best alternative to attending uni
-When the opp cost of taking an action is high, the action is less likely to be taken
Intuition: Should Sidney Crosby attend uni
What is the opp cost:
Tuition/books: 15, 000
Foregone earnings: 5,000,000
Total=5,015,000
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