02_Econ8e_PPT_Ch02

Views:
 
Category: Education
     
 

Presentation Description

No description available.

Comments

Presentation Transcript

Choice, Opportunity Costs,and Specialization : 

Choice, Opportunity Costs,and Specialization Chapter 2 Economics, 8th Edition Boyes/Melvin

Opportunity Cost : 

Opportunity Cost Opportunity cost: the value of the highest-valued alternative that must be forgone when a choice is made. It is the evaluation of a trade-off. Marginal benefits and costs: the benefits and opportunity costs associated with one additional unit of the good. 2 Copyright © Cengage Learning. All rights reserved.

Opportunity Costs and Concerts : 

Opportunity Costs and Concerts You’ve just won a free ticket to see a Madonna concert. U2 is performing on the same night. Tickets to see U2 cost $75. On any given day, you would be willing to pay up to $100 to see U2. Based on this information, what is the opportunity cost of seeing Madonna? (a) $0, (b) $25, (c) $75, or (d) $100. Copyright © Cengage Learning. All rights reserved. 3

Opportunity Costs : 

Opportunity Costs The opportunity cost of seeing Madonna is the total value of everything you must sacrifice to attend her concert - namely, the value to you of attending the U2 concert. That value is $25 - the difference between the $100 that seeing U2’s concert would be worth to you and the $75 you would have to pay for a ticket. Copyright © Cengage Learning. All rights reserved. 4

Decision Making : 

Decision Making Principle: Decision making involves trade-offs. A trade-off means a sacrifice--giving up one good or activity in order to obtain some other good or activity. Copyright © Cengage Learning. All rights reserved. 5

Production Possibilities Curve : 

Production Possibilities Curve The production possibilities curve shows the maximum quantity of goods and services that can be produced when the existing resources are used fully and efficiently. Copyright © Cengage Learning. All rights reserved. 6

Production Possibilities : 

Production Possibilities Underutilized (Inefficient) Nondefense Goods B1 F1 C1 D1 Only nondefense goods produced E1 Only defensegoods produced A1 Efficient Combinations Defense Goods Impossible 200 175 150 125 100 75 0 75 25 50 G1 100 125 150 7 Copyright © Cengage Learning. All rights reserved.

Growth : 

Growth The PPC moves outward (growth occurs) as the result of: Increased resources Larger labor force Change in labor force participation Chance in labor-leisure decision Improved technology (innovation) Expansion of capital stock An improvement in the rules (laws, institutions, and policies) of the economy 8 Copyright © Cengage Learning. All rights reserved.

A Shift of the PPC : 

A Shift of the PPC Nondefense Goods B1 C1 D1 E1 A1 Defense Goods 200 175 150 125 100 75 0 75 25 50 B2 100 125 150 225 A2 C2 D2 E2 F2 9 Copyright © Cengage Learning. All rights reserved.

Marginal Cost : 

Marginal Cost The Production Possibilities Curve (PPC) illustrates the concept of opportunity cost. Each point on the PPC means that every other point is a forgone opportunity. The PPC bows outward because there are ever-increasing marginal costs to the production of any good. 10 Copyright © Cengage Learning. All rights reserved.

Specialization : 

Specialization Economic agents (individuals, firms, nations) will be better off if they choose to produce those things for which they have the lowest opportunity costs, and trade for those with higher costs. Agents do this because such choices involve giving up the least amount of other things. 11 Copyright © Cengage Learning. All rights reserved.

Specialization & Trade : 

Specialization & Trade Comparative Advantage: the ability to produce a good or service at a lower opportunity cost than someone else. Law of comparative advantage: proposition that the joint output of trading partners will be greatest when each good is produced by the low opportunity cost producer. 12 Copyright © Cengage Learning. All rights reserved.

Optimism and the Economy : 

Optimism and the Economy How do natural disasters and terrorist attacks affect international trade and economic growth? A report from the World Trade Organization (WTO) says while the immediate effect on particular industries can be notable, the economy-wide impact these events have on trade and growth is short-term and generally minimal. 13 Copyright © Cengage Learning. All rights reserved.

Private Property Rights : 

Private Property Rights Private property rights are necessary for a market economy to develop. If no one owns something, no one has the incentive to take care of it. 14 Copyright © Cengage Learning. All rights reserved.

authorStream Live Help