EC120 Lecture Notes - Lecture 4: Externality, Public Good, Market Economy

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12 Jan 2016
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EC120 Full Course Notes
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EC120 Full Course Notes
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The study of the allocation of scarce resources which are . resources with alternative uses . Note: by scarce we do not mean there is a shortage of something rather we mean that virtually everything has an alternative use and if we use it for one thing, we cannot use it for another. Society faces an important trade off efficiency vs equity. Efficiency: getting the most out of scarce resources. Redistribute in ways that cause the least efficiency loss. The cost of something is what you give up to get it. Opportunity cost: whatever must be given up to obtain something else. Making decisions come with the cost and benefits of alternative choices. The opportunity cost of any item is whatever must be given up to obtain it. Explicit costs are usually easy to see since they are connected with the specific costs, which we pay.

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