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Unformatted text preview: ECONOMIC CHOICES
SCARCITY s OPPORTUNITY COSTS s MODEL: PRODUCTION POSSIBILITIES CURVE s SPECIALIZATION & PRODUCTIVITY
s Limited resources and unlimited wants
x not the same as shortages or poverty s Scarcity leads to choices and choices imply OPPORTUNITY COSTS OPPORTUNITY COSTS
s Definition: value of the next best or highest valued alternative forsaken; that is the foregone opportunity
x not sum of all other options forsaken x not the monetary cost of your choice s Model illustrating concept of opportunity costs.
x production possibilities curve PRODUCTION POSSIBILITIES CURVE
x given time period x fixed level of resources are fully employed x given state of technology
s Analyzing the Model
x Efficiency (on the curve) x Inefficiency (inside the curve) x Trade-offs (moves along the curve) x Economic growth (shift of the curve) x Specialization of resources (shape of the curve) SPECIALIZATION & PRODUCTIVITY
s Absolute Advantage
x being more productive or better than anyone else x not basis of specialization
s Comparative Advantage
x activity with the lowest opportunity cost x more productive relative to others x basis of specialization s Division of Labor
x specialization based on comparative advantage Comparative Advantage -examples
s Career Choice and opportunity costs
x Mechanic-$50,000 x NBA Player- $400,000 x Attorney-$100,000 s Basis of international trade
x produce where have comparative advantage and trade REVIEW OF CONCEPTS & TERMS
s s s s s s Macroeconomics v.Microeconomics economic choices rationality assumption aggregates ceteris paribus absolute v. comparative advantage s s s s s s s positive v. normative economics scarcity resources opportunity costs production possibilities model economic models economics defined ...
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- Spring '08
- Opportunity Cost