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Unformatted text preview: 8/30/2008 1 Chapter 2 Scarcity, Choice, and Economic Systems Recap Individuals: Scarcity of time and spending power forces us to make choices More of one thing means having less of the other Society: Scarcity of resources forces it to make choices Spend on military or health care? How do we choose? Comparing benefits of an action to the cost of taking that action What forms costs? 2 The Concept of Opportunity Cost Opportunity Cost of any Choice Value of the next best alternative that you have to forego when you decide to undertake an activity Arises from the scarcity of time or money 3 It is also called Implicit Cost since no direct payment is made Problem #2 Total costs Total costs include both opportunity (implicit) costs and explicit costs Explicit cost 4 The dollars sacrificed - and actually paid out for a choice Table 1: An Example of Total Cost 5 Total cost of going to a 4 year public college Explicit costs Assume same expenditure on transportation and boarding if you stay at home so exclude it from explicit costs Tuition and fees + books and supplies = $5,491+$894 = $6,385 Implicit or Opportunity Costs Value of income foregone since because you decided to attend college and not work The average income of an high school graduate for 9 months = $16,500 Total costs for a year of attending college = explicit costs + implicit costs = $16,500 + $6,385 = $22,885 6 8/30/2008 2 Opportunity Cost and Society Arises from the scarcity of societys resources Our desire for goods is limitless...
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This note was uploaded on 10/10/2010 for the course ECO 182 taught by Professor Morgan during the Spring '08 term at SUNY Buffalo.
- Spring '08