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ECO100Y1- Final Exam Guide - Comprehensive Notes for the exam ( 343 pages long!)Premium

343 pages234 viewsWinter

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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Week #1
The Economic Way of Thinking
Scarcity - As a society, we have limited resources, unlimited wants
1. Individual
-Limited budget
-Limited time
Forces us/Leads to choices
Economics - Study of how rational people make choices
Rational (economic) Decision Making
Two key building blocks: of economic way of thinking
2.1. Opportunity Cost - what one forgoes/gives up by not taking the best alternative action
-A MEASURE OF COST
Insights:
1. The question "Should I do X?" should be replaced by "Should I do X or Y?"
2. Opportunity cost includes time cost + money cost
Note: If the opportunity cost of you taking an action is high, you are less likely to take the action
Example 1. You choose to attend a concert, which costs $50. What is the opportunity cost?
Answer: YOU NEED TO STATE THE BEST ALTERNATIVE
best alternative is earning $80 in 2 hours, opportunity cost = $50 + $80 = $130
Remember: The opportunity cost spending $1 is $1
Example 2. You choose to go to a concert, which costs $50. Your neext best alternative is to go for a
walk, which you value at $25. (whats the value of the concert though?)
Answer: Opportunity cost = $50 + $25 = $75
Example 3. You choose to go to a concert, which costs $50. Or walk = $25. Or watch TV = $20, or nap =
$15
Answer: Opportunity cost = $50 + $25 = $75 (Others r less value than the walk)
The Applications of Opportunity Cost:
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Should this individual operate a hot dog stand?
1. Revenues (per 8 - hour day)
100 hot dogs at $2.50 = $250
2. Direct Costs ( per 8 - hour day)
Rent for stand - $75
Hot dog buns - $75
= $150
3. Difference = 100(250 - 150)
We can't answer the questions, cuz we have missing information, we need the opportunity cost of the
individual's time (the wage)
(1) If $15/hour, opp. cost is $120 for 8-hour day, therefore he should not operate stand $120 > $100
What if opp. cost is $10 per hour?
$100 > $80, therefore go operate the stand
Question
Why do few medical doctors operate hot dog stands?
Answer
The opp. cost of their time is so high (highest earning profession)
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