2nd class - Economics 101 Lecture 2 Some Business Head TA -...

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Economics 101 Lecture 2
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Some Business Head TA - HIROAKI MIYAMOTO  <hmiyamoto@wisc.edu> Instant Aplia feedback Tangent line approximates a curve locally  about a point “ECON 101” in subject line Test on Feb 20 – first 3 chapters (the  core). Ask questions in-class. Slow to fast.
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Opportunity Cost The opportunity cost of a engaging in an  activity is the value of everything you must  sacrifice to engage in it.  
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You won a free ticket to an Eric Clapton concert. No resale. Bob Dylan is playing on the same night and is your most attractive alternative. Ticket to see Dylan is $40 You would be willing to pay up to $50 to see Dylan No other costs of seeing either performer What is the opportunity cost of seeing Clapton?
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How doe we reason through  this? What do we give up by seeing Clapton?   -the opportunity to see Dylan for $40 What is this opportunity worth (i.e., up to  how much would you bid for it on ebay?)   -Dylan is worth $60, and the ticket costs  $50, so the opportunity is worth $10 = $60  - $50,      i.e., I receive $10 in economic surplus  from the opportunity, so this is the  maximal amount I would bid.
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Test Question Recall the Clapton ticket had NO resale value. Suppose now I could sell my Clapton ticket on the secondary market for $50. Now what is my opportunity cost of seeing Clapton $60 = $10 + $50
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The Scarcity Principle    (Also called  the No-Free-Lunch Principle) Although we have boundless needs and  wants, the resources available to us are  limited.  So having more of one good  thing usually means having less of  another. 
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8 Vilfredo Pareto “Once, during a speech he was making at a statistical congress in Bern, Pareto spoke of ‘natural economic laws,’ whereupon. ..
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9 Gustav Schmoller Gustav Schmoller, who was present, said there was no such thing as ‘natural economic laws.’
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10 Vilfredo Pareto Afterwards, Pareto asked Schmoller whether he knew of an inn where he could eat for nothing.
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11 Gustav Schmoller The elegantly dressed
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2nd class - Economics 101 Lecture 2 Some Business Head TA -...

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