ECO 108 Lecture 1 - Intro Thursday 9:59 AM Opportunity cost...

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The psychological, monetary, etc. cost that you are sacrificing to be here. - Paying tuition, what you could've done if you weren't here - All choices entail some opportunity cost. - We want to be conscious of these costs - - If you were not here, where would you be? Opportunity cost If something is expensive, you'll buy it less. Consumers react. - Example: gov't puts cap on price of something. Market can react by not producing the goods anymore. - Example: rent control reduces the supply of housing. - Reaction: housing market goes into slump. - The market strikes back Two nations trade. One nation has an advantage in one good, but may be relatively worse in some goods. Trading specialized goods for goods the nation needs. - Both nations benefit. - Lowest opportunity cost for both nations. - Comparative Advantage Trade is beneficial for both parties. A win-win situation. - Restrictions on trade LOWER benefits - Intervention into markets RAISE costs - Trade Marginal = small change. - Marginal costs = change in costs. Cost if you increase your production by one unit. - Rational decisions = comparison of costs to benefits at the margin -
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