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Chapter 1

ECON 1P91 Chapter Notes - Chapter 1: Opportunity Cost


Department
Economics
Course Code
ECON 1P91
Professor
Professor Cottrel
Chapter
1

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Class 1!!!!Chapter 1!September, 8. 2011
Economic Issues and Concepts
Economics
-the study of the use of scarce or limited resources to satisfy unlimited human wants.
Resources - Scarcity and Choice
- A society’s resources are usually divided into land, labour and capital.
- Resources are known as factors of production.
- Outputs are goods (tangibles) or services (intangibles).
- Resources can only produce a fraction of the goods and services desired by people.
- Most of the time the resources are limited.
- Everyone wants a piece of the oil in Alberta and the gas in Saskatchewan because the
North has riches.
-Due to the scarcity of the resources, it implies the need for choice.
- Every choice has an associated cost, the opportunity cost.
- Opportunity cost is defined as the benefit given up by not using resources in the best
alternative way. It is the cost of losing something not achieved because another choice
was made.
- Refer to diagram in Chapter 1 Slide 4.
Diagram Explanation:
A child has only 50 cents to spend. She wishes to spend it all on two types of candy,
bubble gum at 5 cents each and lollipops at 10 cents each. The constraint is 50 cents
aka Resources. The opportunity cost of getting 1 more lollipop is the 2 bubble gums that
must be given up. Maximum production combinations are seen on the line of the
diagram.
- Refer to diagram in Chapter 1 Slide 6.
Diagram Explanation:
The PPB is the production possibility boundary.
Four Key Economic Problems
1. What is Produced and How it’s produced? (Refer to slide)
-Resource Allocation determines the the quantities of various goods that
produced.
-
2. What is Consumed and By Whom?
-What determines how economies distribute total output? Why do some people
get a lot and why do some get so little?
-Will the economy consume exactly what it produces?
-Microeconomics is the study of the allocation of resources as it is affected by
the workings of the price system.
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