EC 201 8-29-08 - compare college and alternative opp. Cost...

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EC 201 8-29-08 Robert Frost-“Two roads diverged…and sorry I could not travel both…” Michelob light- “yes, you can have it all!” “You can’t always get what you want.” Scarcity and choice are fundamental Goal: make best choices → compare all relevant benefits and all relevant costs Opportunity cost o Opp. Cost of action is value of next best alternative o Opp. Cost of an action is what must be given up o Sometimes, easy to measure opp. Cost in $ terms- sometimes not o May 2001 – Baskin Robbins- “free” ice cream → no explicit out of pocket cost o True opportunity cost = explicit cost (getting ice cream) (zero) + implicit cost (waiting cost) (large) o Opp. Cost of college- standard number includes only explicit, out of pocket costs Books Incidentals Includes things should be excluded Excludes what should be included o next best alternative = get out of HS and get a job
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Unformatted text preview: compare college and alternative opp. Cost are tuition and fees truly opp. Cost is food truly an opportunity cost? No true opp. Cost= (room EL- room MC) in important implicit cost : foregone earnings (for some, largest cost) opp. Cost = (earnings after HS-earnings part-time college) ~ $10,000 o opp. Cost of college is large but benefit is large: college earnings >> earnings HS o Kevin Garnett- opp. Cost = tuition + forgone earnings = $20 million/ yr o Graphical Tool: production possibilities of available resources used as well as possible efficient not being wasteful Special case: 2 activities use same resources + technology green Frisbees + white Frisbees made- up to get one additional white, give up one green opp. Cost of one additional W = 1 G opp. Cost of one green = 1W...
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This note was uploaded on 04/19/2011 for the course EC 201 taught by Professor Ballard during the Fall '08 term at University of Michigan.

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EC 201 8-29-08 - compare college and alternative opp. Cost...

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