Study Guides (238,413)
Canada (115,125)
Economics (558)
ECO100Y1 (110)

Exam Notes All the topics included

196 Pages
Unlock Document

University of Toronto St. George
James Pesando

9/9/2009 3:03:00 PM Wednesday 09, 2009 Website access Username: pesando Password: windsor The Economic way of thinking The economic problem : Scarcity requires Choices Economic Decision Making: Opportunity cost Marginal Analysis Compare additional benefits with additional cost. Ignore sunk Costs. People Respond to incentives Scarcity Individual Limited budget Limited time Society Limited resources to produce goods Choices Economics study of how rational people make choices Insights Opportunity cost and Marginal analysis Logycal thinking in economic context Apparently non- economic problems are economic problems. Opportunity cost The opportunity cost of an action is what one forgoes (gives up) by not taking the best alternative action. Insights: The question Should I do X? should be replaced by Should I do X or Y where Y is the most highly value alternative to X ? Opportunity cost includes time cost as well as money cost Examples: The opportunity cost of attending University for 1 year If the best alternative is fulltime work at $20k Per year, the op. cost Tuition 8000 Forgone earnings 20000 28000 If the best alternative is fulltime work at $40k Per year, the op. cost Tuition 8000 Forgone earnings 40000 48000 Room and board $ 7000 Include in Opportunity Cost? No, if student would have to pay for room and board if working full-time The opportunity cost of attending a movie If the best alternative is working at a part time job at $10 per hour, the op. cost is: Ticket price: 12 Foregone Earnings: 20 (2h) 32 If the best alt. is going for a walk then the opt cost: Ticket price: 12 Stisfaction from walk: monetary value exceeds $20 by implication 20 (2h) >32 Receive Free Concert Ticket (2 hours) Best alternative Dinner at a favorite restaurant, which you value at $100 (2h) Cost of restaurant meal is $75 3. What is opportunity cost of attending concert ? Answer :$25 Monetary value $100 - meal is -75 $ 25 Measuring opportunity cost. Action taken: direct costs (each dollar spent has oppt. Cost of one dollar) PLUS Next best alternative : Dollar amount or valur assigns by you l ess direct cost. Applications: Should this individual operate a hot dog stand? Revenues at $2.5 = $250 Direct Costs (per 8h daily) Rent for stand 75 Hot dogs, buns- 75 150 Difference 100 (250-150) Missing information Opportunity cost of individuals time If could earn $15 per hour, opportunity cost of $120 for 8h Since 120 exceeds 100, should not operate stand What if opt. cost is $10 per hour? YES Insight: The higher the Opportunity cost -> less likely to take action Example: Plan to attend university rather then work Obtain high-paying job -> Opportunity cost is high Result: may choose not to attend university Summer jobs. High school graduates 20 000 per year 40000 per year Equally good students If summer jobs made permanent who is more likely to enter university in September ? Answer : A student December 1990 Ontario universities predict first year enrolment: 25 000 Spring 1991 Economy enters deep recession. Employment drops. Unemployment rises. September 1991 Is actual enrolment likely to be more then 25k or less then 25k? Answer : more Monday, September 14, 2009
More Less

Related notes for ECO100Y1

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.