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

Info icon This preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 103 Lecture # 8 Opportunity Cost
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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.
Image of page 2
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.
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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.
Image of page 4
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?
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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?
Image of page 6
To figure out the cost of the next best alternative, you may need to 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?
Image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern