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Unformatted text preview: Econ Chapter 1 21/02/2008 18:38:00 ← How Much Does it Really Cost ← Economist say that the trust costs of such decisions are not the number of dollars spent on the computer, the new equipment or the military but rather the value of what must be given up in order to acquire the item – the vacation trip, the new executive offices, and the new schools. These are called opportunity costs because they represent the opportunities the individual, firm, or government must forgo to make the desired expenditure. • Economists maintain that rational decision-making must be based on opportunity costs, not just dollar costs. ← ← Attempts to Repeal the Laws of Supple and Demand-The Market Strikes Back • When a commodity is in short supply, its price naturally tends to rise. o Politicians sometimes get involved, by making the high prices illegal – by imposing a ceiling on the price. • When supplies are abundant, prices tend to fall. o The same way price ceilings can be imposed, so can price floors. ← ← The Surprising Principle of Comparative Advantage ← Comparative advantage proves that even though two one nation may be able to...
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This note was uploaded on 03/30/2008 for the course ECON 101 taught by Professor Hansen during the Spring '07 term at Wisconsin.
- Spring '07