BU111 Lecture Notes - Lecture 2: Opportunity Cost
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EC120 - Fall 2017 - Class 2 Summary
The second lecture focuses on how economists analyze problems. As such, we will look at the
diﬀerent types of questions that economists try to answer, and introduce our ﬁrst model, the
production possibility frontier (PPF). The PPF is an ideal model to understand the concept of
opportunity cost, along with feasibility and our ﬁrst concept of economic eﬃciency. A critical point
for students to remember is that eﬃcient is not synonymous with good. An eﬃcient outcome may
be undesirable for many reasons. The reason to deﬁne eﬃciency is that when an outcome is
ineﬃcient, that often identiﬁes a dimension along which the outcome can be improved. We will
return to this point throughout the course.
Pre-Lecture Learning Objectives
Students should read through chapters 1 and 2 before the lecture (focus on pp4-7 and p.25), and
(if possible) complete the Dynamic Study Module: Basic Principles of Economics.
By the start of the lecture, students should be able to:
1. Understand the diﬀerence between positive and normative statements.
2. Identify the primary features of a graph showing a Production Possibility Frontier (PPF).
Lecture Learning Objectives
By the end of this lecture,
1. Assess statements as either positive or normative, and understand how economic analysis is
used in each case.
2. Draw a production possibility graph for an economy that produces two goods.
3. Use that graph to identify allocations as feasible or infeasible, and eﬃcient or ineﬃcient.
4. Assess changes in allocations in terms of beneﬁts and opportunity cost.
1. (Pearson) Lecture 2 Homework (due September 22nd)
2. (MyLS quiz) Lecture 2 Review Quiz (due December 8th)
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