Multiplied by 4 years thats 100000 certainly this

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Unformatted text preview: ances are that you’d be earning income working at a job. For example, perhaps you could be working at a full-time job earning $25,000 annually. Multiplied by 4 years that’s $100,000. Certainly this forfeited $100,000 is part of the cost of your attending college. Even if you earn some money working part-time while in school, you will be giving up some earnings. How do the earnings you would give up compare to the earnings that someone like Chris Rock would have to give up? Even though the tuition, room, board, and other costs of attending college are roughly the same for everyone who attends your college, the opportunity costs will not be. Some people have higher opportunity costs of attending college than others do. Can you see how it was simply too “costly” for Chris Rock to attend college? THINK ABOUT IT You may not be making hundreds of thousands of dollars shortly after graduating from high school, but if you decide to go to college, you will have opportunity costs. What will be your opportunity costs for going to college? give up (in terms of good waves), the higher their opportunity cost of attending class, and the less likely they will attend class. The less students have to give up (in terms of good waves), the lower their opportunity cost of attending class, and the more likely they will attend class. Section 1 The Foundation of Economics 9 01 (002-029) EMC Chap 01 11/17/05 4:03 PM Page 10 High school teachers have observed that seniors, in their last semester in school, cut classes more often than any other time of the year. Does this behavior have a “surfer explanation,” which is really an opportunity cost explanation? Yes, the opportunity cost explanation says that by the time their last semester at high school rolls around, many seniors have already been admitted to college. In their minds, missing a class here or there will not do much harm to their chances of getting into college. Let’s put it the way an economist would: the opportunity cost of going to class is less after a senior has been admitted to college than before he or she has been admitted to college; therefore, we would EXAMPLE: production possibilities frontier A graphic representation of all possible combinations of two goods that an economy can produce. EXH I BIT 1-2 Production Possibilities Frontier Combination Snowboards and Skis A B C D 50,000 40,000 25,000 0 and and and and 0 20,000 40,000 60,000 (a) Snowboards (thousands per year) 50 A B 40 30 C 25 F 20 E One Diagram, Three Economic Concepts You have probably heard the saying, “A picture is worth a thousand words.” With that saying in mind, let’s look at a diagram that can be used to illustrate the three economic concepts we have discussed: scarcity, choice, and opportunity cost. The diagram is called a production possibilities frontier (or PPF, for short). A production possibilities frontier shows all possible combinations of two goods that an economy can produce in a certain period of time (see Exhibit 1-2). To keep things simple, we have assumed that only two goods, snowboards and skis, can be produced in an economy. In Exhibit 1-2(a) you see the four different combinations (A–D) of these two goods that an economy can produce. For example, it can produce 50,000 snowboards and 0 sets of skis, or 40,000 snowboards and 20,000 sets of skis, and so on. We then take each of the four combinations and plot them in Exhibit 1-2(b). If we simply connect these four points, A–D, we have a production possibilities frontier. In other words, the curve you see in Exhibit 1-2(b) is a production possibilities frontier (PPF). 10 Scarcity and the PPF D 0 10 20 30 40 50 60 Skis (thousands per year) (b) The economy can produce any of the four combinations of snowboards and skis in part (a); these combinations are plotted in part (b). 10 expect a higher absentee rate (among seniors) when the opportunity cost of attending class is lower. (Be aware: Some colleges will grant admission, but on the condition that a student maintain his or her GPA. In this case, then the opportunity cost of attending class is the same before and after the senior is admitted to college.) Chapter 1 What Is Economics? Now let’s think about scarcity in terms of the PPF. Scarcity, as you know, is the condition in which our wants are greater than the resources available to satisfy them. The PPF itself, the actual curve in Exhibit 1-2(b), illustrates this concept. The PPF tells us that certain things are available to us and certain things are not. We can’t have everything we 01 (002-029) EMC Chap 01 11/17/05 4:03 PM Page 11 want. Any point on the PPF itself, such as points A–D, is available to us. For example, we can have point B, which represents 40,000 snowboards and 20,000 sets of skis. We can also have the combination of goods represented by any point below the PPF, such as point E. What we can’t have—what is unavailable to us because we don’t have enough resources to produce it—is the combination of goods represented...
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This document was uploaded on 01/16/2014.

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