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1、2019/4/24,1,Opportunity cost and trade,1.Which one do you choose?,2,1,3,2019/4/24,Which opportunity would you choose？,2019/4/24,Opportunity cost,Opportunity cost is whatever must be given up to obtain some item.,2019/4/24,2.People face tradeoffs.,“There is no such thing as a free lunch!”,2019/4/24,2
2、. People face tradeoffs.,To get one thing, we usually have to give up another thing. Guns v. butter Food v. clothing Leisure time v. work Efficiency v. equity,Making decisions requires trading off one goal against another.,2019/4/24,2. People face tradeoffs.,Efficiency means society gets the most th
3、at it can from its scarce resources. Equity means the benefits of those resources are distributed fairly among the members of society.,Efficiency v. Equity,2019/4/24,3. The cost of something is what you give up to get it.,Decisions require comparing costs and benefits of alternatives. Whether to go
4、to college or to work? Whether to study or go out on a date? Whether to go to class or sleep in?,2019/4/24,3. The cost of something is what you give up to get it,The opportunity cost of an item is what you give up to obtain that item.,2019/4/24,Premises： Multiple options Scarcity,Example,Mr. Wang is
5、 the manager in a company. He has a storefront which is suitable to establish a small shop so he decided to operate the business. Expected investment: 200,000 yuan Hire 2 Employees,2019/4/24,10,2019/4/24,According to the analysis of the situation like the location and the resident population, he est
6、imated the sales in one year as follows:,Sales revenue - Stock cost = Gross profit 480,000 - 320,000 = 160,000 Other costs Wages to employees 60,000 taxes 10,000 Water and Electricity 10,000 Net profit: 80,000,2019/4/24,11,Have all costs been fully taken into account?,Capital interest Interest rate
7、5%:10,000 per year Time and ability Salary for manager: 80,000 per year Rent The rent of his storefront: 60,000 per year,2019/4/24,Profit calculation,Sales revenue - Stock cost = Gross profit 360,000 - 200,000 = 160,000 Other costs Wages to employees 60,000 taxes 10,000 Water and Electricity 10,000
8、Capital interest 10,000 Time and ability 80,000 Rent 60,000 Net profit: -70,000,2019/4/24,2019/4/24,14,According to this result，should he resign to establish and manage the shop?,No!,2019/4/24,14,Scarcity and Choice for Individuals,Opportunity Cost (of a choice): the value of the best alternative th
9、at was not chosen because something else was chosen. Premises： Multiple options Scarcity,15,2019/4/24,3. The Cost of Something Is What You Give Up to Get It.,LA Laker basketball star Kobe Bryant chose to skip college and go straight from high school to the pros where he has earned millions of dollar
10、s.,2019/4/24,Opportunity Cost, an example:,What is the opportunity cost of attending an 8 a.m. economics class? To answer this question, think of all the other activities you could do at this exact time, and rank these choices (from most preferred to least preferred).,2019/4/24,Opportunity Cost, an
11、example:,At 8 a.m., you could sleep a bit more, have a longer breakfast, take more time to walk to school, watch the early morning news, etc. Since you made a choice to come to your 8 a.m. economics class, then the best alternative that you DID NOT choose is your opportunity cost. If you value sleep
12、 the most, then sleeping is your opportunity cost.,2019/4/24,2019/4/24,19,3、,What is your opportunity cost of a 4-year degree at SICHUAN University?,For an economist,the cost of something is not just the cash payment, but all of the value given up in the process of acquiring the thing. For example,
13、the cost of a university education involves tuition, and text book purchases,and also the wages that would have been earned during the time at university, but were not.,20,2019/4/24,Opportunity Costs: Community College and the Economic Downturn,In 2008-2009 when the economy was experiencing a recess
14、ion (subprime crisis), many community colleges reported increased enrollments at approximately 10 percent over the previous year. Can you use the concept of opportunity costs to explain why this might be so?,2019/4/24,Conclusions,Opportunity cost is an important economic concept. Opportunity cost is
15、 closely related to other important economical concepts, e.g. comparative advantage.,2019/4/24,Interdependence and the Gains from Trade,2019/4/24,23,Interdependence and Trade,Consider typical day for an American You wake up to an alarm clock made in Korea. You pour yourself some orange juice made fr
16、om oranges grown in Florida. You put on some clothes made of cotton grown in Georgia and sewn in factories in Thailand. You watch the morning news broadcast from New York on your TV made in Japan. You drive to work in a car made of parts manufactured in a half-dozen different countries. and you havent been up for more than two hours yet!,2019/4/24,24,Interdependence and the Gain
