What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: Allocating a square block in the heart of New York City for a surface parking lot or allocating a square block at the edge of a typical suburb for such a lot? Explain. LO1 A1.
Opportunity cost is the value of the next best thing forgone, this is always present whenever a choice is made. Economics is the social science that examines how individuals, institutions, and society make optimal choices under conditions of scarcity. Central to economics is the idea of opportunity cost: the value of the good, service, or time forgone to obtain something else. Allocating the square block in the heart of New York City would enable more parking spaces which would be priced as a premium as there are few lots available. However, since most commuters to the city park in the suburbs, then it would be more cost effective to place the lot in the suburbs. Q3.
KEY QUESTION Cite three examples of recent decisions that you made in which you, at least implicitly, weighed marginal cost and marginal benefit. LO1 A3.
The economic perspective includes three elements: scarcity and choice, purposeful behavior, and marginal analysis. It sees individuals and institutions making rational decisions based on comparisons of marginal costs and marginal benefits. I
Going to the grocery store - instead of going to Publix, I went to Walmart, Publix is closer, however, Walmart is cheaper, thus providing a cost saving for future purchases. II
Saving in the grocery allowed me to take my son to see the movie Iron Man II, and I packed water which saved me from making additional purchases for drinks, so the benefit was to see the movie with no additional cost. III
Going to work on Friday provided me with a days’ work of pay, if I had elected to stay home due to my headache, while I would have used a sick day, it would be one less day I have...
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