ECN211 L2-Opportunity Cost_BB

ECN211 L2-Opportunity Cost_BB - ECN 211 Macroeconomic...

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1 ECN 211 Macroeconomic Principles L2. Opportunity Cost and Production Possibility Curves 
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2 Opportunity Cost When an individual makes a choice they always incur an “opportunity cost” The opportunity cost of any activity is the __________________________ because of that decision. This is why there is no such thing as a “free lunch”.
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3 Opportunity Cost Example A tailor may be able to sew either a pair of trousers or two shirts in an hour If the tailor opts to make the trousers, her opportunity cost will be ___________
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4 Opportunity Cost of Attending Class What is the opportunity cost of attending this class today? Answer – the _______________ use of the 1 hour 15 minutes of time:
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5 “At the Margin” When we make choices we compare the marginal benefits ( _________  benefit from a decision) against the marginal costs  ( ___________  cost  from a decision) – The opportunity cost is part of the marginal costs. – Remember rational self interest. Ex. • When you are deciding to purchase a soda you compare the  _______________(no longer thirsty) with the ___________  (alternative things that you could of spent the $1 on).
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6 Production Possibility Curve (PPC) A way of illustrating the concepts of  scarcity  and  _____________ PPC defines the current limits on production capabilities in a
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ECN211 L2-Opportunity Cost_BB - ECN 211 Macroeconomic...

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