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chapter 2 - 12 September 2011 Economics are about tradeoffs...

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12 September 2011 Economics are about tradeoffs opportunity cost ; the highest valued alternative that must be given up to engage in an activity i. all actions imply an opportunity cost ii. opportunity costs = true economic costs Cost-benefit analysis; is what you have to give up worth the benefits of what you will receive? Labor + leisure = L + l = T, T = time constraint (many times it is 24, but it can be 16) Wage is the slope of the line; the slope of the line is the opportunity cost; wage is opportunity cost of leisure. Why not work one extra hour (extra $10) if you've already worked eight? Because of the cost-benefit analysis, it might be worth it to gain that time of leisure rather than have an extra $10. Ex: If you believe that you can benefit from an hour in class or an hour of work, the marginal benefit of coming to class is greater than staying in bed. If your wages increase (overtime, etc.), the cost-benefit analysis might be greater. For example, if you receive overtime for working past eight hours in one day, then it could be worth it to work for the ninth or tenth hours.
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