lecture8 - Economics 103 Lecture # 8 Opportunity Cost What...

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Economics 103 Lecture # 8 Opportunity Cost
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What is Cost? - this is one of the most useful ideas in economics but it is one of the least understood. The most common notion of cost is … historical cost. Historical (Accounting) Cost: What you paid for something. In economics we don’t use this notion of cost.
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We don’t use it because often it is irrelevant for behavior. -Manhattan originally sold for $24 worth of trinkets. - Your parents paid $15,000 for their home in Vancouver in 1967. - You paid $7500 for stock in GetRich.com in 1999, but then the dot.com crash hit. In each case, the historical price is completely irrelevant for how you behave now.
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In Economics cost is often called Opportunity Cost to highlight the difference with historical cost. PRINCIPLE #4: Opportunity Cost The value of the highest forsaken alternative. Costs depend on the alternatives you face.
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My wife and I decided we could either have a vacation or a divorce. We chose a divorce because a vacation only lasts a week, but a divorce can last a lifetime.” Why would King Richard III pay so much for a horse?
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Why would a loaf of bread cost $1.35? What does that mean in terms of opportunity cost? Cost refers to an action/verb. How much does it cost to make, eat, sell a hamburger What does a hurricane cost?
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add some costs up. Suppose you want to buy an ice-cream cone, and it “costs” $2.50.” Is the $2.50 a cost? But you have to wait in line for 10 minutes. Should this be part of the cost? How would you add
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This note was uploaded on 04/16/2009 for the course ECON 103 taught by Professor Hanafiahharvey during the Winter '08 term at Simon Fraser.

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lecture8 - Economics 103 Lecture # 8 Opportunity Cost What...

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