ECON 262

In Class Exercise Three - Introduction (cont.) - Opportunity Cost, Etc.

1.  Provide another example of the broken window fallacy – besides those already discussed in class.

2.  What does "opportunity cost" mean?  Relate this concept to the broken window fallacy.

3.  Why would an economist say that "words are cheap" or "actions speak louder than words?"   Relate this to the concept of "opportunity cost."

4.  Relate efficiency to the subjective value people have for certain goods and services.

5.  Why do economists say that both parties benefit from a trade?  In your answer, (a) explain why the benefit happens, (b) how do you know it happens, and (c) explain the assumption you are making.

6. What questions do you still have about this material?