chap2 - Chapter 2 Opportunity costs Scarcity Economics is...

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    Chapter 2: Opportunity costs
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    Scarcity Economics is the study of how  individuals and economies deal  with the fundamental problem of  scarcity.  As a result of scarcity, individuals  and societies must make choices  among competing alternatives.
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    Opportunity Cost The opportunity cost of any alternative is  defined as the cost of not selecting the "next- best" alternative. Example: Suppose that you own a building  that is worth $100,000 today and is expected  to be worth $100,000 one year from today. If  the interest rate is 10%, what is the  opportunity cost of using this building for one  year?
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    Example II The opportunity cost of college  attendance includes:  the cost of tuition, books, and supplies, foregone income (this is usually the largest  cost associated with college attendance),  and psychic costs. What about room and board?
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    Example III: Opportunity cost of attending a movie: opportunity cost of tickets opportunity cost of time
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    Marginal analysis Marginal benefit = additional benefit  resulting from a one-unit increase in the  level of an activity Marginal cost = additional cost  associated with one-unit increase in the  level of an activity
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    Net benefit Individuals are not expected to  maximize benefit; nor are they expected  to minimize costs. Individuals are assumed to attempt to  maximize the level of net benefit (total  benefit minus total cost) from any  activity in which they are engaged.
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