There is no such thing as a free lunch Chapter 1 Section 3

5 trips (free airfare)

5 Trips Cost of Living 1. Sydney, Australia #5 2. Amsterdam, Netherlands #7 3. San Jose, Costa Rica #45 4. Jakarta, Indonesia, #76 5. Bombay, India #83

Opportunity Cost  Cost not just price tag  The cost of the next best alternative Example: Where would you rather work at? A: Factory job for $10.25 per hour B: Landscaping job with 3 close friends for $8.65 per hour  What is the Opportunity Cost of each choice?

Opportunity Cost of College?  What does it cost to go to college? Chart on page 16

Opportunity costs for business  Businesses need to expand  Scarce Resources used for something different Natural, Capital, Labor  Use a Production Possibility Frontier Graph

3 Questions  Should a country produce everything it wants? Why/Why not?  If Country A is better than Country B at producing everything, would Country A gain anything by trading with Country B?  When a new home is built, why doesn’t one person do the carpentry, electrical, plumbing and landscaping?

Definitions  Opportunity Cost Value of the next best alternative  Why did Joe Maurer not attend college?  Law of Comparative Advantage A person, business, country with the lowest opportunity cost of producing a good should specialize in that good.  What can Minnesota do better than anywhere else?  Absolute Advantage Ability to produce something using fewer resources than other producers

Lebron James Example  Lebron has a young neighbor named Scotty who is willing to mow his lawn

Facts  Lebron can mow his lawn in two hours  He could also film a nike commercial in two hours and make $10,000  What is his opportunity cost of mowing the lawn?

Facts  Scotty can mow Lebron’s lawn in 4 hours. He could also work at Mcdonalds for 4 hours and make $8 an hour  What is Scotty’s Opportunity Cost?

Questions  Who has the abosolute advantage?  Who has the comparitive advantange?  Would Lebron benefit from a trade?  Would Scotty benefit from a trade?

So….  Specialize in what we are good at, trade for the rest Examples: food, assembly lines, athletics