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ECON 0110 (84)
Lecture

Section 5 Notes.doc

5 Pages
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School
Department
Economics
Course
ECON 0110
Professor
K E N K E L
Semester
Spring

Description
SECTION 5: OPPORTUNITY COST The best alternative that we give up when we make a choice Suppose we are on the PPF I.e., we are producing efficiently To produce more of one item, we must give up some of the other item In order to produce trucks, must give up some cars. Opportunity cost of a truck is 200/150 = 4/3 Numerator = cost , denominator = gain Cost/Gain Suppose we are inside the PPF We can increase production of either or both of the items by becoming more efficient MEASURING OPPORTUNITY COST Put good Y on the vertical axis Put good X on the horizontal axis The opportunity cost of 1 additional unit of X equals the slope of the PPF CONSTANT OPPORTUNITY COST The PPF is a straight line and has a constant slope The slope is negative To get more of one item, we always give up a constant amount of the other item EXAMPLE OF CONSTANT OPP
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