EC120 Lecture Notes - Lecture 2: Opportunity Cost, Perfect Competition
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EC120 Full Course Notes
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In most developing countries, better measurement of low income than high. In developing countries, better measurement of high income than low income. Positive question: a question that potentially has a right answer. Normal question: a question that could not have a right answer. Models are simplifications focus on core elements of a problem. Models are (cid:862)u(cid:374)realistic(cid:863) assu(cid:373)ptio(cid:374)s: use models to highlight particular issues. Assumptions simplify problems: markets assumed to be perfectly competitive, ppf economy simplified to two goods. Simplification to two outputs, (often) one input. Highlights two main concepts: trade-offs, opportunity cost, efficiency. Can be used to think about economic growth. Moving along a ppf shows opportunity costs. How much of one product do you give up to get another product. Opportunity cost of x is the (negative) slope. Opportunity cost of y is the reciprocal of the slope. No opportunity cost when growing more of both (not losing anything)
