Applied Economics Lesson 3, Slides of Economics

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VARIATIONS IN

BENEFITS AND

COSTS DUE TO

STAGE OF

RECOGNITION

Prepared by: Melvin O. Alejandrino

OPPORTUNITY COST

• The loss of potential gain from another alternatives when one alternative is chosen.

EXAMPLE

• You have an apple (P25) and an orange (P35). You chose to eat the apple rather than the orange.
• The opportunity cost is of the apple is an orange.

2 PARTS OF VALUE

• 1. Benefits
• 2. Cost
• You’ve chosen the apple because it is cheaper.
• You didn’t choose the orange because you don’t like citrus/sour fruits.
• You’ve chosen the apple because it helps your skin better than orange.
• You didn’t choose the orange because you find it hard to peel one.

IMPLICIT VS EXPLICIT COST

• Explicit Cost – cost involving monetary payment. Usually produces receipts.
• Implicit Cost – cost involving allocation of resources for a specific purpose. It cannot be easily assigned a monetary value.

SITUATION

• You opened a laundry shop in a commercial space for rent. You bought all the automatic washing machines and hired staffs such as guard and a cashier. One day, 5 out of your 10 washing machines broke. You estimated that a washing machine earns you P200/hr. You rushed to the repair shop and you were advised that each washing machine will be repaired for P200 and informed that the fixing time is 5 hours. Can you list down some explicit and implicit cost?

ECONOMIC COST

• The sum of

implicit and

explicit cost.

SITUATION

• An employee is paid $30 per

hour. He decided to buy a

new phone and went to the

mall for an hour. The phone

costs $250.