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Chapter 1

ECON-UA 2 Chapter Notes - Chapter 1: Opportunity Cost, Human Capital

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Andrew Paizis

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Economics= The study of choice under conditions of scarcity
I. Scarcity and Individual Choice
Scarcity= a situation in which the amount of something available is insufficient to satisfy
the desire for it.
“Time is money.” Scarcity of (1) time and (2) spending power limits indiv.’s
abilities to satisfy their desires
--> They must make choices
Opportunity cost= what is given up when taking an action or making a choice-- “the
road not taken”
When the alternatives to a choice are mutually exclusive, only the next best
choice-- the one that would actually be chosen-- is used to determine the
opportunity cost of the choice
Opportunity cost= explicit cost + implicit cost
Explicit cost= the $$ sacrificed-- and actually paid out-- for a choice
Ie. direct money payments that are part of opportunity costs
ie . $$ you paid that you wouldn’t have otherwise
Implicit cost= the value of something sacrificed when no direct payment
is made (eg. time)
eg. foregone income= income you forgo (you forgo it b/c opp. cost,
II. Scarcity and Social Choice
Input= Anything used to produce a good or service. (eg. electricity to power classroom lights is
an input, not a resource, but the electricity is produced from resources) One special type of
input is a resource:
Resources= the
(1) Labor
= the time spent by humans producing goods and services
(2) Capital
= any long- lasting tool that is itself produced and helps us make other goods and
services (it HAS to be long- lasting= it lasts more than a year. Flour used by a baker
does NOT count).
(i) physical capital= the part of the capital stock consisting of physical
goods, such as machinery, equipment and factories (eg. hammer)
(ii) human capital= the skills and training of the labor force
Capital stock= the total amount of capital in a nation that is still
productively useful at a particular point in time
(3) Land (inc. natural resources)
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