ECON 101 Lecture Notes - Lecture 2: Ceteris Paribus, Opportunity Cost, Absolute Advantage
Document Summary
Ceteris paribus analysis: change just one of the independent variables and examine how wage. Danger of faulty assumptions: wrong assumptions = wrong predictions, examine and re-evaluate the assumption model, ex: assumption that housing prices is always rising. Production possibilities frontier: production possibilities frontier: combinations of outputs that a society can produce if all of its recourses are being used efficiently, assumptions of this model: Ppf line gives highest quantity that we can produce. Must give up one good to increase production of another. Efficient points: points on the pff (a, b, c, d) Unattainable (for now) points: points outside pff (e) Opportunity cost in this case is the slope of the ppf. Ppf and opportunity cost nonlinear ppfs: we can draw a more realistic ppf by making it nonlinear and "bowed outward" The ppf will not have a constant slope in this case.
