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Lecture 1

ECON101 Lecture Notes - Lecture 1: Opportunity Cost, European Cooperation In Science And Technology, Comparative Advantage


Department
Economics
Course Code
ECON101
Professor
Mesbah Sharaf
Lecture
1

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CH 1 The Roles and Methods of Economics
CH 2 Scarcity, Trade-os, & Production Possibilities
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Limited Resources
Scarce "not enough" !
Labor, capital, minerals, lands, etc. (factors of production)!
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Unlimited Needs
Goods are tangible (things that we want)!
Services are intangible (i.e. transportation) !
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###**limited resources + unlimited needs = the economic problem**
Economics
The science that studies how to use scarce resources to satisfy unlimited needs!
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Micro vs. Macro
Microeconomics studies the behaviour of individual units "producers & consumers"!
Macroeconomics studies the behaviour of the whole economy or the aggregates "totals"!
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Scarcity, Choice, & Opportunity Cost!
Since resources are scarce, we are forced to choose the most important needs "priorities" !
Opportunity Cost: when we get something, we give up something else!
Scarcity choice opportunity cost "the highest sacrifice"!
Working at the bank will earn you $25/hr, working at McDonalds will earn you $11/hr, and attending an
ECON 101 lecture earns you $0/hr. By attending the lecture instead of working at the bank or McDonalds,
you are losing $25. !
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Production Possibility Curve
Shows the dierent bundles "combinations" of any two goods that we could produce if we use all resources!
Points on the PPC are attainable & ecient!
Points below are attainable, but inecient !
Points above are not attainable !
The PPC shows scarcity by the points above the curve!
Choice is shown by points on the curve, where we have to choose one of them!
Finally, opportunity cost is shown by the negative slope of the PPC!
EXAMPLE: !
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OPPORTUNITY COST IS CONSTANT!
#**PPC is a straight line**

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Increasing Opportunity Cost!
Law of Increasing Opportunity Cost !
The amount that we have to give up from one of the good to get the other good is getting bigger and bigger!
Why is the opportunity cost increasing?!
Because resources are not
easily transferable from one use
to another!
PPC shifts outward if the quantity of
the resources increases or if there is
technological progress (economic
growth)!
Economic growth DOES NOT
eliminate scarcity!
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Circular Flow Model
Shows the flow of inputs and outputs and their payments
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Goods & Services Flow!
Flow of output & inputs !
The economy "inner flow"!
Income Flow!
Flow of income & expenditures!
The economy "outer flow"!
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PPC after economic growth!
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PPC before economic growth
Buy goods
& services
Sell inputs Buy inputs
Sell goods
& services!
Revenues!
Income
Consumption/
spending
Production Market!
Firms!
Input Market!
Household
Payments for
input, wages,
rent, interest, etc.
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