Lecture4_

# Lecture4_ - Supply The Cost Side of The Market LECTU RE...

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Supply: The Cost Side of The Market LECTURE

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Slide 2 Thinking About Supply: The Importance of Opportunity Cost The supply curve for a good or service is rooted in the individual’s choice of whether to produce it. Supply is related to costs of production. Economic Costs or Opportunity Costs = Forgoing the opportunity to produce alternative goods and services.
Slide 3 Supply and Opportunity Cost Example : Tom is a seasonal worker. In October, he has two options: to work for a pumpkin producing farm for \$30/hour, or to collect refundable containers in order to earn the refund. How much time should Tom spend recycling soft drink containers?

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Slide 4 Search time (hours/day) Total number of containers found Additional number of containers found 0 0 1 300 300 2 500 200 3 650 150 4 750 100 5 800 50 Observation : as time passes, the containers become scarce. Supply and Opportunity Cost
Slide 5 Supply and Opportunity Cost What reward per container will have to be paid in order to convince Tom that he should continue to collect them? If the redemption price is 10 cents, how many hours should Tom spend recycling?

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Slide 6 Supply and Opportunity Cost Search time Total # containers Additional containers 1 300 300 2 500 200 3 650 150 4 750 100 5 800 50 Benefit / extra hour (\$) 300*0.10 = 30 20 15 10 5 Opportunity cost of collecting cans = \$30/hour. Tom would earn \$30 for the first hour, but only an additional \$20 for the second hour. => 1 hour spent collecting cans .
Slide 7 Supply and Opportunity Cost Search time Total # containers Additional containers 1 300 300 2 500 200 3 650 150 4 750 100 5 800 50 Benefit / extra hour (\$) 45 30 22.5 15 7.5 Opportunity cost of collecting cans = \$30/hour. 2nd hour benefit (\$30) = Opportunity Cost (\$30). => 2 hours spent collecting cans . If the redemption price rises to 15 cents…

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Slide 8 Supply and Opportunity Cost Search time Total # containers Additional containers 1 300 300 2 500 200 3 650 150 4 750 100 5 800 50 Benefit / extra hour (\$) 60 40 30 20 10 Opportunity cost of collecting cans = \$30/hour. 3rd hour benefit (\$30) = Opportunity Cost (\$30). => 3 hours spent collecting cans . If the redemption price rises to 20 cents…
Supply and Opportunity Cost Search time Total # containers Additional containers 1 300 300 2 500 200 3 650 150 4 750 100 5 800 50 Benefit / extra hour (\$) 90 60 45 30 15 Opportunity cost of collecting cans = \$30/hour. 4th hour benefit (\$30) = Opportunity Cost (\$30).

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## This note was uploaded on 04/21/2011 for the course ECON 1001 taught by Professor S.c during the Fall '10 term at HKU.

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Lecture4_ - Supply The Cost Side of The Market LECTU RE...

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