Econ2 - (iii) Excludes what should be included 1. Next best...

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Econ 1) Two roads diverge in a yellowed wood, and sorry I could not travel both 2) Michelob light—yes, you can have it all!!! 3) You cant always get what you want 4) Scarcity and choice are fundamental a) Goal make best choices b) Compare all relevant benefits with all relevant costs i) What costs shouldn’t we include, what benefits should we include? c) Opportunity cost: defines how we think about defining costs. . define it properly so we can make the right decisions i) The opportunity cost of action is value of next best alternative ii) Opportunity cost of an action must be given up d) Sometimes easy to measure opportunity cost in $ terms e) Sometimes not free i) Baskin robbins… FREE ice cream---no explicit out of pocket cost (1) True opportunity cost… = explicit cost (0) + implicit cost (large) (2) Opportunity cost of college (a) Standard number (i) Tuition, books, fees, (ii) Includes only explicit out of pocket costs
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Unformatted text preview: (iii) Excludes what should be included 1. Next best alternative=get out of hs get hob 2. Is troon expense bigger than room expense in Livonia? a. No i. True opportunity cost = room in EL room in MtClemens) ~~0 ii. Opportunity cost after college earnings part time in college = 10/20000$ iii. Opportunity ost of college is large iv. College earnings>earnings in HS (3) Graphical tool: production possibilities frontier: just a graph in principal graphed in many dimensions but mostly 2. (a) Combinations of outputs that can be produced IF available resources used as well as possible (i) Efficient is not wasteful (b) Special case: 2 activities use same resources and technology (i) Green Frisbees and white Frisbees (ii) 500,500---800,2001000,0 to get one additional white, give up one green (iii) opp cost of one additional white = 1 g...
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