ECON 20 Lecture Notes - Lecture 2: Full Employment, Opportunity Cost, Economic Model

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18 Aug 2020
Department
Course
Professor
Jeff Koo
Econ 20
Introductory Economics
Fall 2018
4 Units
Society’s Economizing Problem
4 categories of economic resources
Land (Everything that compromises the land, the “gifts of nature” that are use in the
production process)
Labor (the physical actions and mental activities that people contribute to the production
of goods and services)
Capital (equipment, infrastructure, new tools, etc.)
Investment (financial spending aspects that go towards the purchase of Capital)
Entrepreneurial ability (individual that takes the factors of production to provide a good
and/or service to the marketplace and take the risk)
Production Possibilities Model
Economic model that shows different combinations of two goods that an economy can
produce (given its resources and technology)
Full employment
Fixed resources
Fixed technology
2-good economy
Consumer goods and capital goods
If a Production Possibilities Model curve moves to the right, it will likely be a result of an
increase in productivity. Alternatively it could also be moved right by new technology.
(Unemployment does not affect the production possibilities curve, because the curve
represents full employment and full exploitation of resources)
Caveat - a limitation on something, fixed resources/technology/employment are all examples of
a caveat within an economy.
You will have increased opportunity cost as you increase production.
Increasing Opportunity Costs
Law of increasing opportunity costs
As more of a particular good is produced, its marginal opportunity costs increase
Production possibilities curve
Concave shape
Economic rationale
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