# MHR 405 Lecture Notes - Lecture 3: Opportunity Cost, Blackboard, Real Interest Rate

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Published on 25 Feb 2015
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Note on the Midterm Exam
Questions: 60 Multiple Choice questions. Please bring your Ryerson ID, a calculator,
pencils and erasers to the exam.
Material: Lecture 1 to Lecture 5 or Chapter 1, Appendix to Chapter 1, Chapter 2 and
Chapter 4 , Chapter 5, Chapter 6, Chapter 7, Chapter 8, Chapter 9.1 and Chapter 9.2.
Materials that never covered in the lecture will not be on the exam.
Practice Questions: Lyryx Labs 1-6, Connect Quiz 1 and 2 and additional questions posted
on the blackboard.
Office Hour: In order to make our communication more effective, I will hold an on line
office hour on Friday, February 20th, from 1pm to 3pm, you can send me emails or join the
Discussion Board on the blackboard (to access the discussion board, login to the
blackboard, click Discussions).
I also have additional office hour on Tuesday, February 17th, 2:00pm – 4:00 pm, in my
office JOR217, at Ryerson extension 4795.
TA will hold their regular office hour during the reading week.
STUDENT STUMBLING BLOCKS:
The following list is a summary from each lecture regarding the most difficult
Lecture One:
1. Microeconomics and Macroeconomics
A. Microeconomics looks at specific economic units.
a) It is concerned with the individual industry, firm or household and the price of
specific products and resources.
b) It is an examination of trees, and not the forest.
B. Macroeconomics examines the economy as a whole.
a) It includes measures of total output, total employment, total income, aggregate
expenditures, and the general price level.
b) It is a general overview examining the forest, not the trees.
2. Production possibilities tables and curves
A. A production possibilities table illustrates some of the possible choices (Slide #14).
B. A production possibilities curve is a graphical representation of choices (Slide #14.#15).
a) Points on the curve represent maximum possible combinations of robots and pizza given
resources and technology.
b) Points inside the curve represent underemployment or unemployment.
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c) Points outside the curve are unattainable at present.
C. Optimal or best product-mix:
a) It will be some point on the curve.
b) The exact point depends on society;
D. Law of increasing opportunity costs (Slide #18-20, very important):
a) The amount of other products that must be foregone to obtain more of any given product
is called the opportunity cost.
b) Opportunity costs are measured in real terms rather than money (market prices are not
part of the production possibilities model.)
c) The more of a product produced the greater is its (marginal) opportunity cost.
d) The slope of the production possibilities curve becomes steeper, demonstrating
increasing opportunity cost. This makes the curve appear bowed out, concave from the
origin.
e) Economic Rationale:
i. Economic resources are not completely adaptable to alternative uses.
ii. To get increasing amounts of pizza, resources that are not particularly well suited for
that purpose must be used. Workers that are accustomed to producing robots on an
assembly line may not do well as kitchen help.
*Need to know how to calculate opportunity costs based on the production
possibility table or production possible curve.
3. Graphs and Linear Function (Slides #11, #12)
A. Constructing a two-dimensional graph involves drawing a horizontal and a vertical axis.
B. Direct and inverse relationships
C. Dependent and independent variables:
a) Economists are often interested in determining which variable is the “cause” and
which is the “effect” when two variables appear to be related.
b) Mathematicians are always consistent in applying the rule that the independent
variable or “cause” is placed on the horizontal axis and the dependent variable or
outcome (effect) is placed on the vertical axis.
c) Economists are less tidy, and traditionally have put price and cost data on the vertical
axis.
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