Econ 011007

Econ 011007 - o Total costs are 20 billion per year o Does...

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Econ 011007 Lecture 2 Thinking like an economist: avoid percentage confusion distinguish average from marginal accounting for opportunity cost thinking clearly about sunk costs -when ppl start flinging around percentages, ask “percent of what?” opportunity cost o opp. Cost of a resource is the value of its next best use o ie. Given free frequent flyer ticket to Paris over spring break Roundtrip airfare to paris is $1000 If not used to Paris, use it to fly home. Roundtrip fare home is $600 Opportunity cost is $600-next best use Unrelated to what you paid for the ticket Unrelated to price of flying to Paris so long that it is more than $600 Fly to Paris if and only if it is worth more than $600 to you to do so Average and marginal o NASA supporter estimates gains from cutrrent space shuttle are 24 billion per year from 4 flights
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Unformatted text preview: o Total costs are 20 billion per year o Does this imply that more flights would be justified? Not necessarily, benefit is 24/4=6, avg. cost is 20/4=5 But what would be gain from an additional flight and what is cost Relevant comparison is marginal benefit and marginal cost • sunk costs o spent $500 on nonrefundable airline ticket to vacation spot over spring break. When time arrives, not feeling well and have a lot of work to do. Reluctantly decide to go “because otherwise $500 would be wasted” o is this a mistake? Depends: if given free ticket to destination, would u go? Iraq: • do benefits from a “surge” in troops in Iraq exceed the costs? • Regardless of whether we should have invaded Iraq, do the benefits from keeping troops exceed the costs?...
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Econ 011007 - o Total costs are 20 billion per year o Does...

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