ECON1101 Chapter Notes - Chapter 1: Marginal Cost, Opportunity Cost, Marginal Utility
Chapter 1
• Opportunity cost- the value of the next best alternative foregone
o E.g. for uni students the opportunity cost is the money that could
have been made if instead of studying the individual was working
o Opportunity cost is higher when deciding to study a masters
degree than a bachelors degree (foregoing a higher salary)
• Thinking on the margin: rational to take an action if the marginal
benefit exceeds the marginal cost
• Trade- relocation of goods and services in a way that improves people’s
well being, permits specialisation
• Economic interactions can occur within a market: selling something to
someone else or within a firm: services are integrated without buying or
selling
• Comparative advantage: a situation in which one person or group can
produce one good at a lower opportunity cost (with comparatively less
time, effort or resources) than another individual or group)
• People specialise in the skill with comparative advantage
• Increasing opportunity costs: a situation in which producing more of
one good requires giving up an increasing amount of production of
another good
o Happens because resources that are suited to one sector have to be
used in another e.g. making more movies and less computers:
workers who are good at building computers might not be so good
at acting → costly in terms of loss of computers and it might add
little to movie production
• Production possibilities curve: a curve showing the maximum
combinations of production of two goods that are possible, given the
economy’s resources
o When resources increase curve shifts out
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