Textbook Notes (367,979)
United States (205,929)
Economics (193)
ECON 102 (58)
Chapter 2

ECON 102 Chapter 2.docx

5 Pages
Unlock Document

ECON 102
Logan Mc Leod

Chapter 2 Production Possibilities Production Possibilities Curve (PPC) - A graph representing all possible combinations of maximum outputs that could be produced assuming a fixed amount of resources of a given quality Opportunity Cost - The value of the next best alternative that we give up or forego when we make a decision *Example: Summer School Class ● Tuition (In-state) = $1944 ● Books = $200 ● Foregone Wages $10/hr x 40 hrs x 7 weeks = $2800 ● Total opportunity cost = $4944 Sunk Costs: (Money that cannot get back no matter what the decision is) - should not be considered when making a decision PPC Example: Capital Goods Consumer Goods Marginal Opportunity Cost 740 0 0 700 100 40 650 200 50 580 300 70 500 400 80 400 500 100 0 600 400 Assumptions about the PPC ● Resources are fully employed ● Production takes place over a fixed period of time ● Resources are fixed ● Technology is fixed PPC facts ● Points outside the PPC not feasible ● Points inside are feasible and reasons for it are... ○ Resources are not fully employed ○ Using our resources inefficiently *Reasons for Shifts of the PPC* ● change in resources ● change in technology Main Points about the PPC: ● PPC is downward: this represents opportunity cost ● PPC is bowed out: this represents the Law of Increasing Additional Cost (or Law of Increasing Marginal Opportunity Cost) ● Points inside the PPC: represents unemployment or not using all of our other resources or using our resources inefficiently ● Points outside the PPC are not feasible: We can represent economic growth by shifts of the PPC Absolute and Comparative Advantage Absolute Advantage - One country has an Absolute Advantage in the production of a good over another country if it can produce a given amount of a good using fewer resources New Zealand Australia Wheat 6 2 Cotton 2 6 * units = yield per acre* * Each country has 100 acres* * Each country wants an equal amount of each good* Without Trade: New Zealand 25 acres x 6 wheat/acres = 150 wheat 75 acres x 2 cotton/acres = 150 cotton Without Trade: Australia 75 acres x 2 wheat/acres = 150 wheat 25 acres x 6 cotton/acres = 150 cotton With Trade New Zealand: 100 acr
More Less

Related notes for ECON 102

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.