ECN 001A Lecture 2: ECN 1A – Lecture 2 – Opportunity Costs and Circular Flow Diagram

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29 Sep 2018

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ECN 001A Lecture Notes - Lecture 1: International Monetary Fund, Salma Hayek, Madeleine Albright

ECN 001A Lecture 2: ECN 1A – Lecture 2 – Opportunity Costs and Circular Flow Diagram

ECN 001A Lecture Notes - Lecture 3: Comparative Advantage, Progressive Country, Opportunity Cost

Document Summary

Ecn 1a lecture 2 opportunity costs and circular flow diagram: economics is the study of scarcity and how to effectively allocate scarce resources. Examples of scarce resources: time, steel, capital, and diamonds: the concept of scarcity implies that there are tradeoffs. Tradeoffs are what you need to give up in order to do something. The time you use to attend a college class, that same time could be used for working a job. If you go to a movie, you could be giving up an opportunity to study for your classes: people make rational decisions, the ones that are best for them. Based on the diagram, owning and selling factors and productions in the context of households refer to their savings and labor. One hypothesis could be potentially using different ingredients. For instance, you may try using a different type of chocolate; add more or less yeast or eggs, or changing the proportions of the ingredients in the recipe.

Related Questions

6. Given that resources are scarce:

A. A "free lunch" is possible, but only for a limited number of people.

B. Poor countries must make choices, but rich countries do not have to make choices.

C. Opportunity costs are experienced whenever choices are made.

D. Some choices involve opportunity costs while other choices do not

7. The opportunity cost of playing tennis with your friend is:

A. Negative since its good exercise

B. Zero since you already own the tennis racket and play on a public court

C. The next-best alternative use of your time that is forgone.

D. The cost of the tennis lessons you took last year.

8. The concept of opportunity cost would become irrelevant if:

A. The market mechanism functioned to allocate resources.

B. The government allocated resources.

C. The production possibilities curve bowed outward.

D. Resources were no longer scarce.

9. If resources are limited:

A. People will rush to buy more goods than they would otherwise.

B. Businesses will sell more products than they would otherwise.

C. Choices that involve tradeoffs must be made.

D. All individuals are deprived of basic necessities.

10. Which of the following is true about the factors of production?

A. The factors of production as well as technology determine the physical limits to production

B. Rich countries have an unlimited quantity of factors.

C. The factors include natural resources but not skilled labor.

D. Some factors are scarce but other factors are not.

amethystraven1

Economics is nothing more than the study of scarcity and choice. It's called the Economizing Problem.

Economics is also the study of human action---why people make the choices they do.

We have finite (limited) resources and infinite (unlimited) demand for goods and services. We must, therefore, use rational decisions as to how to allocate these resources so that we can produce the goods and services that satisfy as many needs and wants as possible.

Needs are those things that make life possible---food, clothing, shelter, etc. Wants are the things that make life easier---glass in windows, carpet on the floor, a refrigerator to keep your beer cold, etc.

The resources we are trying to use wisely are not confined to money. We are talking about talent, ability, drive, ambition, etc. We can't all be brain surgeons. Nor would most of us want to be. We have different needs and wants that drive our ambitions. I have 5 grandchildren. The oldest two are twins---a boy and a girl. My granddaughter graduated from Idaho University with a bachelor's and a master's degree in accounting in 5 years. She passed the CPA exam on the first try. She now lives in Panama and works for BMW. She speaks, reads, and writes 4 languages, including English. Her brother finally graduated from the University of Arkansas in May 2016 after 8 years! Why did it happen this way?? They were raised the same way by the same parents. Why was my granddaughter drove to succeed and my grandson so listless?

Then there is subjective valuation and opportunity cost. Opportunity cost is nothing more than what you have to give up to do something else. Some of you might have to roll out of the bar or the party a little before you wanted to leave just to be able to attend my class. You might also have to give up some precious sleep. In any event, you had to give up something to attend my class. That's the opportunity cost. Remember, everything you do has a price (opportunity cost) that must be paid according to Harry Browne who wrote, How I Found Freedom in an Unfree World.) To do one thing you must give up the opportunity to do something else.

When people decide to buy a product or service they must decide if it will satisfy a need or want at a price they are willing to pay. The number one reason that people buy the products or services they do is called Personal Tastes or Preferences (Subjective valuation). Everyone has a different price they are willing to pay for the same product or service. Something is only worth what someone is willing to pay for it. That's a subjective valuation. Each of us has a different intensity of demand for the same products. Things you want I may not care for at all, and the opposite may also be true. This is why there is such a variety of goods and services offered on the market.

Subjective valuation is also fluid. As your income goes either up or down it changes your valuation of products and services. Have you ever wanted something so bad you would do almost anything to get it---an i phone or I pad?---but once you get the money you think, "do I really want this?' and you don't buy it. This is common. If it were not for a subjective valuation we would all be wearing the same style and color clothes and living in similar houses, etc. Wouldn't that be a wonderful world! I'd find the tallest building in downtown Orlando and see if I could fly! It is not the similarity in people that interests me. It's the differences. It's my desire not to be like everyone else that has driven my life. Don't strive to be someone else. Strive to find and be yourself. God save me from a terminal case of conventional wisdom!

There are 5 embedded questions.

Give me an example of subjective valuation.

salmoneel837

Part 1

The term opportunity cost suggests that

A.	in any exchange situation where one person gains, someone else must lose
	B. not all individuals make the most of life's opportunities
C.	executives do not always recognize opportunities for profit as quickly as they should
	D.the only factor that is important in decision making is cost
E.	because goods are scarce, in order to get some good you must give up some other good in return

Part 2:

Which of the following is an example of division of labor?

	A.an author writing a book one chapter at a time
B.	a firm trying to get rid of a labor union
C.	separating resources into four categories: land, labor, capital, and entrepreneurial ability
D.	allocating revenue among a firm's resource suppliers
E.	dividing an assembly process into separate steps

Part 3:

In economics, specialization means

	A.producing something using only one type of resource, such as labor
B.	producing something using only one type of labor
C.	focusing efforts on a particular product or a single task
D.	producing only one unit of output
E.	producing something using only one unit of a variable resource

ECN 001A Lecture 2: ECN 1A – Lecture 2 – Opportunity Costs and Circular Flow Diagram

ECN 001A Lecture Notes - Lecture 1: International Monetary Fund, Salma Hayek, Madeleine Albright

ECN 001A Lecture 2: ECN 1A – Lecture 2 – Opportunity Costs and Circular Flow Diagram

ECN 001A Lecture Notes - Lecture 3: Comparative Advantage, Progressive Country, Opportunity Cost

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