chapter 2 scarcity instructor power point

chapter 2 scarcity instructor power point - ECONOMIC...

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Unformatted text preview: ECONOMIC CHOICES SCARCITY s OPPORTUNITY COSTS s MODEL: PRODUCTION POSSIBILITIES CURVE s SPECIALIZATION & PRODUCTIVITY s SCARCITY 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 s Assumptions 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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