Opportunity Cost and Supply
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Transcript Opportunity Cost and Supply
Opportunity Cost and Supply
Presentation copyright © 1999 by Barry Brownstein
Opportunity Cost
Just like demand, supply and costs are also
based on valuations
The cost of any action is the value of the
alternative opportunity that must be
sacrificed in order to take the action.
Similarly manufactures must pay a resource
a price that matches their best opportunity
There are no objective costs-cost is
associated with action and choice
Examples
Why is it getting harder to find a teenage
babysitter?
What is the cost of an volunteer army?
– why does it transfer but not cut costs?
What is the cost of a college education?
– Why is it different to different people?
Is cutting grass in India with kitchen blades
a high or low cost method?
– In the United States?
More Examples
What is the cost per ticket to a baseball
team that offers fifty free tickets?
– Does it depend upon the game?
– Does it depend on who it is offered too?
A relative bought their house 50 years ago
for $20,000. It is now paid for and worth
$250,000. They say” I’m glad a bought the
house then because I can never afford it
now.”- Critique their reasoning
Non-Market Systems
Any system to be efficient has to consider
the alternatives for the resources being used
Without a market it is difficult to get that
information and to use it correctly
Thus non-market systems frequently
allocate resources incorrectly through
central decision making
Supply
Supply is a schedule- a series of prices and
series of quantities that people and firms
would want to supply at each of those
prices, every thing else held constant
Quantity supplied is the amount supplied at
a given price
Graphing Supply
Price
Quantity
Cost and Price
Costs are determined by prices
Why do baseball tickets costs so much?
Why does farmland near a city cost so
much?
Encyclopedia Britannica