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Lecture 2

BU111 Lecture Notes - Lecture 2: Opportunity Cost

Course Code
Sofy Carayannopoulos

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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.
Post-Lecture Activities
1. (Pearson) Lecture 2 Homework (due September 22nd)
2. (MyLS quiz) Lecture 2 Review Quiz (due December 8th)
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