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AAUP: The abbreviation for American Association of University Professors, which is an association of university and college faculty established in 1915 to protect academic freedom. The AAUP is the closest thing university faculty have to a labor union. While it does engage in some collective bargaining functions with specific universities, similar to traditional labor unions, its primary function is to ensure that faculty maintain intellectual or academic freedom from political of social pressures.

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Lesson 3: Scarcity | Unit 3: Opportunity Cost Page: 9 of 17

Topic: The Concept <=PAGE BACK | PAGE NEXT=>

With limited resources and unlimited wants and needs, a lot of opportunities are forgone, a lot of alternatives can't be pursued. This is the idea of opportunity cost.

A definition:

  • Opportunity cost is the highest valued alternative foregone in the pursuit of an activity.
Three points related to this definition:
  • Foregone Alternative: Opportunity cost means NOT doing something else, not producing another good. Using resources to satisfy one want or need means they can't be used to satisfy another.
  • Highest Valued: Opportunity cost is all about giving up the best alternative possible, the most satisfying. Any activity has many alternatives. Opportunity cost is not all of these alternatives, only the most preferred, the highest valued.
  • Pursuit of an Activity: Using resources to produce goods that are consumed to satisfy wants and needs. The key economic activities foregone are production and consumption.

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ASSUMPTIONS, PRODUCTION POSSIBILITIES

The four key assumptions underlying production possibilities analysis are: (1) resources are used to produce one or both of only two goods, (2) the quantities of the resources do not change, (3) technology and production techniques do not change, and (4) resources are used in a technically efficient way.

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Today, you are likely to spend a great deal of time flipping through mail order catalogs hoping to buy either a coffee cup commemorating the first day of winter or a video game player. Be on the lookout for the happiest person in the room.
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Only 1% of the U.S. population paid income taxes when the income tax was established in 1914.
"The past cannot be changed. The future is yet in your power. "

-- Hugh White, U.S. Senator

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