Opportunity Cost and SupplyOpportunity Cost and Supply
Presentation copyright © 1999 by Barry Brownstein
Opportunity CostOpportunity 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
ExamplesExamples 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 ExamplesMore 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 SystemsNon-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
SupplySupply
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 SupplyGraphing SupplyPrice
Quantity
Cost and PriceCost 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