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  • Ch1 Basic Concepts in Economics: Opportunity Cost Goods

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    The document discusses key concepts in economics including opportunity cost, goods, and interest rates. Opportunity cost is defined as the highest valued alternative forgone. Goods are categorized as economic goods, which have production costs and limited availability, or free goods, which do not have production costs and supply meets all demand. Interest rates affect borrowers and lenders differently - for borrowers, higher rates increase the cost of borrowing and decrease present consumption, while for lenders, higher rates increase the return on deferring consumption and increase future consumption.

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    The document discusses key concepts in economics including opportunity cost, goods, and interest rates. Opportunity cost is defined as the highest valued alternative forgone. Goods are categorized as economic goods, which have production costs and limited availability, or free goods, which do not have production costs and supply meets all demand. Interest rates affect borrowers and lenders differently - for borrowers, higher rates increase the cost of borrowing and decrease present consumption, while for lenders, higher rates increase the return on deferring consumption and increase future consumption.

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    1 views1 page

    Ch1 Basic Concepts in Economics: Opportunity Cost Goods

    Uploaded by

    董振鸿
    The document discusses key concepts in economics including opportunity cost, goods, and interest rates. Opportunity cost is defined as the highest valued alternative forgone. Goods are categorized as economic goods, which have production costs and limited availability, or free goods, which do not have production costs and supply meets all demand. Interest rates affect borrowers and lenders differently - for borrowers, higher rates increase the cost of borrowing and decrease present consumption, while for lenders, higher rates increase the return on deferring consumption and increase future consumption.

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    © All Rights Reserved
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    Ch1 Basic concepts in economics

    Opportunity cost
    1. It is the highest-valued option forgone
    2. Full cost = money cost + non-money cost/time cost

    Goods
    Economic goods Free goods
    The quantity available is insufficient to satisfy The quantity available is sufficient to satisfy
    all human wants for it all human wants for it
    People are willing to pay for it People are not willing to pay for it
    There is production cost There is not production cost

    Circular flows of economic activities

    Interests
    For a borrower: it is the cost of earlier availability of goods or resources.
    For a lender: it is the compensation for deferring consumption of goods or the use of resources

    An increase in interest rate encourages lending and discourage borrowing.


    Borrower:
    Cost of present consumption↑ Desire to borrow↓ Present consumption↓
    Interest rate↑
    Lender: Desire to lend↑ Future consumption↑
    Return on deferring consumption↑

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