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Opportunity Costs and the Supply of Goods

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Presentation on theme: "Opportunity Costs and the Supply of Goods"— Presentation transcript:

1 Opportunity Costs and the Supply of Goods
Chapter 3 Opportunity Costs and the Supply of Goods

2 Opportunity Cost - The value of the next best alternative foregone

3 Costs of Actions The real cost of any action is the value of the alternative opportunity that must be sacrificed in order to take action.

4 Hayek “The miracle of markets is that a hundred million ordinary people, just by going about their daily business, end up allocating resource's much more efficiently than would five guys talking on the phone, no matter how smart those five guys are.

5 Hayek cont . It doesn't matter whether the five guys are wearing golf shirts and working for Long-Term Capital or wearing Mao jackets and working for the Party:

6 Hayek cont What happened to Long-Term Capital doesn't illustrate the perils of the market; it illustrates the perils of not having a market. Central planning is a bust when capitalists do it, too.

7 Ceteris Paribus Conditions for Supply
Factor Prices A decrease in Factor Prices shifts the supply curve to the right

8 Ceteris Paribus Conditions for Supply
Number of Firms

9 Ceteris Paribus Conditions for Supply
Expectations

10 New York Times OPEC cuts Production 4% to Prop Up Prices
Friday, 20 October 2006 OPEC cuts Production 4% to Prop Up Prices  Students: Please Graph

11 Ceteris Paribus Conditions for Supply
Weather

12 Ceteris Paribus Conditions for Supply
Taxes Subsidies

13 Ceteris Paribus Conditions for Supply
Technology

14 Ceteris Paribus Conditions for Supply
Prices of Related Outputs

15 Ceteris Paribus Conditions for Supply
Prices of Related Outputs Houses, Apartments, & Office Buildings

16 Ceteris Paribus Conditions for Supply
Prices of Related Outputs Milk and Ice Cream Apartments, Office Buildings, Houses

17 Ceteris Paribus Conditions for Supply
Factor Prices Number of Firms Expectations Weather Technology Taxes & Subsidies Prices of Related Outputs Houses, Apartments, & Office Buildings Milk and Ice Cream

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