Download 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
