Sunday, 13 April 2008

Year 4 Opportunity cost

Today we'll be having a look over the work you did last week on Heathrow.

Then I want you to have a look at the theory of opportunity cost. It is important when looking at absolute advantage and comparative advantage.
  • What is it?
  • Why is it applicable to the theory of comparative advantage which we looked at?
  • In his recent book, The Three Trillion Dollar War – The True Costs of the Iraq Conflict,
  • Joseph Stiglitz says that the Iraq War costs $3 Trillion Dollars. He adds up all the costs of soldier in Iraq, loss of GDP growth, increase in oil price etc. Using the theory of opportunity cost, explain how these numbers, whilst correct in accounting terms are not correct in economics terms (hint: what was the alternative to the Iraqi War?)