Textbook Notes (368,775)
Canada (162,159)
Economics (479)
ECO100Y1 (80)
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E quesion Lec1. www.econmics.utoronto.ca/pesando username:pesando password:Windsor week1 the economic way of thinking 1. opportunity cost 2. marginal cost scarcity individual limited budget limited time society limited resources to produce goods Choices Economics Study of how rational people make choices Rational(economic)decision making Two key building blocks: 1,opportunity cost 2, marginal analysis Opportunity cost The opportunity cost of an action is what one forgoes by not taking the best alternative action. E quesion Insights: 1, the question should I do x should be replaced by Should I do x or y where y is the must highly valued alternative to x 2, opportunity cost includes time cost as well as money cost e.g.1 you choose to attend a concert, which costs $50, what is opportunity cost? To answer: must identify next best alternative If you next best alternative is to work for 2 hours and earn $80, opportunity cost= $50+$80=$130 Remember The opportunity cost of spending $1 is $1(since you could spend on other goods or services) e.g.2 you choose to go to a concert, which costs $50. You next best alternative is to go for a walk, which you value at $25 Opportunity cost=$50+$25=$75 In 2005, you purchased a bottle of rare wine for $50. In 2008, you could have sold the wine for $200. Today, you could sell the wine for $75. If you drink the wine today, and the next best alternative is to sell it, what is the opportunity cost? 0 $50 $75 $200 E quesion Answer: $75 (what you paid in 2005 or what you could have sold the wine for in 2008 are not relevant) Opportuniy cost: Applications Should this individual operate a hot dog stand? 1. Revenues
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