ECON 101 Lecture Notes - Lecture 3: Croatian Radiotelevision, Opportunity Cost, Ceteris Paribus
Econ Lecture 3 Notes
(Chapter 2)
- Negatively sloped because to increase one,
the other must decrease
o Opportunity costs size is reflected in the
slope of the production possibilities frontier
▪ Where it is steep, it shows that opp. cost is
getting bigger
Marginal Opportunity Cost:
- Definition: for any output quantity of a good, the marginal opportunity cost is the
opportunity cost of producing an extra of the argial uit of output
o Use marginal whenever thinking about someone taking an action and the
consequences of the extra bit of action that is taken
▪ For object on horizontal axis
- When the slope of the PPF is fluctuating, the marginal opportunity cost is also varying
- In a linear PPF – the marginal unit of butter always has the same (constant) opp. cost
o Not usual
- Robinson Crusoe
o Resource = time (12 hrs)
o Technology = 1 hr → 4 mangoes or 1 hr → 2 fish
o
o at any given time, you can give up 4 fish and 8 → neg. slope of ½
▪ one extra mango for 15 minutes
▪ half way to catching a fish for 15 minutes
• for ea. mango he wants to get he has to give up half a fish
• opp. cost of 1 fish is 2 mangoes
o always inverse of each other
o Slope tells us marginal opp. cost of producing mangoes is always the same
- Robinson Crusoe w/ Friday:
o Resource = time (10 hours)
o Technology = 1 hour → 3 fish or 1 hour → 3 mangoes
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o
- if you change resources or tech. → ppf moves
- Suppose all resources are used to collect fish
o Largest output of mangoes – 78 (0 fish)
o Largest output of fish – 54 (0 mangoes)
- To gather the first mango, some fish must be sacrificed:
o Roiso’s opportuity ost: ½ a fish
o Friday’s opportuity ost: 1 fish
o Who should gather the first mango?
▪ Robinson has the lower opportunity cost of gathering mangoes
• Lets us get mango in cheapest possible way
o At any time, if you want a mango send up Robinson
- Joint PPF:
o Defn: For any feasible joint output of one good, the join PPF shows the maximum
quantity of the other good that can be produced jointly by all the productive
agents in the economy
o additional mangoes (over 48) requires use of technology of a higher cost →
marginal opp. cost increases (becomes more expensive)
▪ everything depends on identify to identify marginal opp. costs
• always start with person who can produce an item cheapest
o cheap does not mean $$$ → in this case it’s opp. ost
- Allocating productive resources:
o Compare opp. costs of gathering the first piece of fruit for the two producers
- Comparative advantage:
o Definition: If producer A has a lower opportunity cost of producing a good than
producer B, we say that A has a comparative advantage in production of that
good
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ECON 101 Full Course Notes
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