ECN 204 Chapter Notes - Chapter 2: Opportunity Cost, Negative Number, Scientific Method

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25 Apr 2012
Chapter 2: Thinking like an Economist
Economists play two roles:
1) Scientists: try to explain the world
-Economists employ the scientific method, the dispassionate development and testing of
theories about how the world works
2) Policy Advisors: try to improve it
Assumptions simplify the complex world and it makes it easier to understand
Model: a highly simplified representation of a more complicated reality.
The Production Possibilities Frontier (PPF)
-a graph that shows the combinations of two goods the economy can possible produce given the
available resources and the available technology
-Extreme possibilities are the max computers and no wheat and vice versa
Example: 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 and producing one ton of wheat requires 10 hours of labor
A PPF graph
-The Point F, which represents 100 computers and 3000 tons of wheat = requires 40,000 hours of labor,
it is possible for economy to produce this but it will not be efficient because you can get more of either
good without sacrificing any of the other
-The Point G, which represents 300 computers and 2500 wheat= requires 65,000 hours of labor, it is not
possible for the economy to produce this because the economy only has 50,000 hours
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