chap2 - Chapter2:Opportunitycosts Scarcity...

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    Chapter 2: Opportunity costs
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    Scarcity Economics is the study of how  individuals and economies deal  with the fundamental problem of  scarcity.  As a result of scarcity, individuals  and societies must make choices  among competing alternatives.
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    Opportunity Cost The opportunity cost of any alternative is  defined as the cost of not selecting the "next- best" alternative. 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  year?
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    Example II The opportunity cost of college  attendance includes:  the cost of tuition, books, and supplies, foregone income (this is usually the largest  cost associated with college attendance),  and psychic costs. What about room and board?
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    Example III: Opportunity cost of attending a movie: opportunity cost of tickets opportunity cost of time
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    Marginal analysis Marginal benefit = additional benefit  resulting from a one-unit increase in the  level of an activity Marginal cost = additional cost  associated with one-unit increase in the  level of an activity
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    Net benefit Individuals are not expected to  maximize benefit; nor are they expected  to minimize costs. Individuals are assumed to attempt to 
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chap2 - Chapter2:Opportunitycosts Scarcity...

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