ECON 201 Lecture Notes - Lecture 3: Opportunity Cost, Comparative Advantage, Normal Good

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7 Feb 2017
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Econ201 Lecture 3 Notes Feb 2nd
Our Second Model: The production Possibilities Frontier
The Production Possibilities Frontier (PPF): A graph that shows the combination of two
goods the economy can possibly produce given the available resources and the available
technology
o Ex:
Two goods: computers and wheat
One resource: labor (measured in hours)
Economy has 50,000 labor hours per month available for production
Producing one computer requires 100 hours of labor
Producing one tone of wheat requires 10 hours labor
The PPF: What we know so far
o Points on the PPF (like A-E)
Possible
Efficient: all resources are fully utilized
o Points under the PPF (like F)
Possible
Not efficient:
The PPF and Opportunity Cost
The opportunity cost of an item is what must be given up to obtain that item.
Moving along a PPF involves shifting resources (ex; labor) from the production of
one good to the other.
Society faces a tradeoff: getting more of one goof requires sacrificing some of
the other.
The slope of the PPF tells you the opportunity cost of one good in terms of the
other.
The steeper the slope, the higher the opportunity cost.
o Slope: rise/run
Produce where you have a lower opportunity cost (comparative advantage)
The shape of the PPF
Tends to be very strange; concave to the origin
Econ201 - Lecture 4 notes Feb 7th
Trying to Understand the Behavior of Buyers
Demand comes from the behavior of the buyers
The quantity demanded of any good is the amount of the good that buyers are
willing and able to purchase at alternative prices
Law od demand: the claim that the quantity demanded of a good falls when the
price of the good rises, other things equal
Demand Schedule: A table that shows the relationship between the price of a
good and the quantity demanded
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