Econ September 16, 2010
Reading: Chapter 34
Today: Production Possibilities Frontier, the Market Economy, Demand
Aplia: Assignment due Sunday
Production Possibilities Frontier (in notebook): Points a, b, c, and d are efficient. Point f
is unattainable. Point e is attainable but inefficient. Every economy is inside their PPF
(ex: because of unemployment).
Unattainable combinations implies scarcity.
Many choices (many possible points) implies the concept of choice.
Opportunity Cost – the benefit given up by not using the resources in the next best
Ex: Opportunity cost of going to a lecture: What did you give up?
sleeping in, work hours, study/homework, travel, shop, eating, drink, recreation, TV
Assign Values to these things: $10, 14, 16, 8, 2, 4, 1, 18, .25 – pick highest amount ($18
for recreation) because you can’t do all of them at once
Ex: Total cost of a 4 year degree at the U of A:
Actual Expenditure: Tuition $6500/yr, books/supplies $2000/yr = $8500/yr by 4 years =
Opportunity costs: suppose instead of going to the U of A, an individual could work at
$30 000/yr = $120 000
Therefore, total cost (economic view) of going to school = $154 000.
Opportunity cost and gains can be shown in a PPF. (see notes)
Law of Increasing Costs: in order to produce extra amounts of one good, society must
give up ever increasing amounts of the other good (this can be seen in a PPF graph) This
occurs because resources are not equally productive in all activities – some labourers are
better at one thing than the other.
Scarcity ▯choice ▯opport