Chapter 1 1. Ideas for beyond the final exam a. How much does it really cost? i. Opportunity Costs 1. Value of the next best alternative that must be given up because of that decision. 2. Economists say that the true cost of such decisions are not the number of dollars spend on the computer, new equipment, or military, but rather the VALUE OF WHAT MUST BE GIVEN UP TO ACQUIRE THEM. 3. EXAMPLE- cost of college is more expensive add the money you could be making with a job at home, don’t add housing since you pay that either way (tuition + possible income if you weren’t working) b. Attempts to Repeal the Laws of Supply and Demand- The Market Strikes Back ii. Short Supply-Prices Rise iii. Large Quantity-Prices Fall 4. Ceiling on Price or Price Floors a. Such attempts to repeal the laws of supply and demand usually backfire and cause more problems c. Comparative Advantage iv. Even if one of them is more efficient at everything, both countries can gain by producing the things they do best COMPARATIVELY v. Even if you are better at something than someone else, the time you could be spending on what you specialize in is losing money. Do what you do best and hire someone to do the rest. d. Trade is a Win-Win Situation vi. Fundamental Idea- Both parties must expect to gain something! vii. Some things like ticket scalping where both parties are still happy are illegal 5. Well-intentioned but misguided reasoning blocks the possible MUTUAL GAINS that arise from voluntary exchange and thereby interferes with one of the most basic functions of the economic system. e. Government Policies Can Limit Economic Fluctuations- (Don’t Always Succeed) viii. Fiscal Policy: Control over taxes and