Topic06 - Thinking about supply the importance of...

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1 6. Supply and the cost side of the market Thinking about supply: the importance of opportunity cost Example How much time should Harry spend recycling soft-drink containers? Thinking about supply: the importance of opportunity cost Harry is choosing between washing dishes for $6/hour and collecting containers at 2 cents each. Opportunity cost of collecting cans is $6/hour. Example Search time (hours/day) 0 0 1 600 2 1000 3 1300 4 1500 5 1600 Total number of containers found Additional number of containers found 600 400 300 200 100 Thinking about supply: the importance of opportunity cost Costs and benefits 1 hour collecting cans = (600)(.02) = $12 Benefit ($12) > Opportunity cost ($6) 2nd hour benefit ($8) > Opportunity cost ($6) 3rd hour benefit ($6) = Opportunity cost ($6) Thinking about supply: the importance of opportunity cost Question What is the lowest price that would induce Harry to recycle 1 hour/day? Solution 600 containers x 1 cent = $6 = opportunity cost of washing dishes
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