ECO105Y1 Lecture Notes - Lecture 9: Unintended Consequences, Comparative Statics, Risk Compensation
Document Summary
Depreciation the rule for spreading the cost over the lifetime of long-lasting equipment. Obvious costs costs that are easiest and plain to see. Normal profits: compensation for business owner"s time and money, sum of hidden opportunity costs, what business owner must earn to od as well as best alternative use of time and money. Market equilibrium a situation where there is a balance of forces, with no tendency for change. Accounting profits equal revenues minus all obvious costs, including depreciation. But accounting profits miss the hidden, implicit, opportunity costs of a business owner"s time. Obvious costs/explicit costs: costs a business pays directly including depreciation. Depreciation: tax rule for spreading cost over lifetime of long-lasting equipment. Accounting profits: revenues obvious costs (including depreciation) Hidden opportunity costs of what business owner could earn elsewhere. Opportunity cost of time best alternative use of business owner"s time. Opportunity cost of money best alternative use of business owner"s money including risk compensation.
