ECN 104 Lecture Notes - Economic Model, Natural Experiment, Opportunity Cost
21 Mar 2013
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Document Summary
Assumptions and economic models: assumption is used to simplify complexity of the world, example: to study consumption behavior, we may assume there are only two goods. Unrealistic, but will give a valuable insight on consumption behavior: economic model is an explanation of workings of an economic phenomenon, based on simplifying assumptions. B are feasible : output c is not r a. C feasible, the economy can"t produce this combination: output b is efficient, we getting the most out of scarce resources. Ppf and opportunity cost: opportunity cost is what you have to give up in order to obtain something, if economy moves from one efficient point to other on the ppf, it faces a trade-off. Increasing the production of one good means, we need to decrease the production of the second good: the slope of the ppf is opportunity cost of one good in terms of the other.
