Chap9 - Krugman and Wells Chapter 9 Steven J. Haider EC201...

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Krugman Krugman and Wells and Wells Chapter 9 Chapter 9 Steven J. Haider EC201 Spring 2010
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EC201-9-p2 Overview Overview Chapter 2: discussed opportunity cost Chapter 3: laid out the basics of the competitive model, including the supply and demand curve Chapters 4-7: used the competitive model to analyze a variety of issues This chapter: starts to get behind the curves, thinking about basic decision making more carefully Review of opportunity cost and applies it to profits Discussion of marginal analysis
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EC201-9-p3 Opportunity Cost Opportunity Cost Opportunity cost: what must be given up to get something else Explicit vs. implicit costs Explicit are those that require the direct outlay of money. Implicit are those that are forgone, still denominated in money Krugman stole my example These are the “real” costs—think about change in a bank account…
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EC201-9-p4 Accounting vs. Economic Profits Accounting vs. Economic Profits An application of opportunity cost Economic profits are usually less than accounting profits because we must think about the alternative uses of labor and capital Implicit costs include forgone use of capital and labor
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EC201-9-p5 How Much How Much and Marginal Analysis and Marginal Analysis Many economic decisions are “how much” or “how
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Chap9 - Krugman and Wells Chapter 9 Steven J. Haider EC201...

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