ECON 103 Chapter Notes - Chapter 2: Creative Destruction, Common Ownership, Overfishing
9 Jan 2017
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Document Summary
Opportunity costs are subjective, and can only be determined by the decision maker. When making decisions, we pay not only the cost of out first option, but also the potential utility of the foregone option. Value is subjective - for example, a steak has much less value for a vegetarian than for someone than enjoys steak. When individuals engage in mutually voluntary trade, both parties benefit. By channeling resources to those who value them most, trade creates value and increases the wealth created by a society"s resources. Trade doesn"t make anything new, but it creates value by moving resources to those who want them most. Transaction costs are the time, effort, and resources needed to search out, negotiate, and complete a trade. They act as barriers to trade, and prevent many from ever happening ie the time spent getting dressed and driving to a restaurant is the transactional cost of going out to eat.
