chap2 - Chapter2:Opportunitycosts Scarcity n scarcity...

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Click to edit Master subtitle style Chapter 2: Opportunity costs
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Scarcity n Economics is the study of how  individuals and economies deal  with the fundamental problem of  scarcity.  n As a result of scarcity, individuals  and societies must make choices 
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Opportunity Cost n The opportunity cost of any alternative is  defined as the cost of not selecting the "next- best" alternative. n Example: Suppose that you own a building  that is worth $100,000 today and is expected  to be worth $100,000 one year from today. If  the interest rate is 10%, what is the  opportunity cost of using this building for one 
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Example II n The opportunity cost of college  attendance includes: n  the cost of tuition, books, and supplies, n foregone income (this is usually the largest  cost associated with college attendance),  and n psychic costs.
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Example III: n Opportunity cost of attending a movie: n opportunity cost of tickets n opportunity cost of time
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Marginal analysis n Marginal benefit = additional benefit  resulting from a one-unit increase in the  level of an activity n Marginal cost = additional cost  associated with one-unit increase in the  level of an activity
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Net benefit n Individuals are not expected to  maximize benefit; nor are they expected  to minimize costs.
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