ECON202 - Chapter 2

ECON202 - Chapter 2 - ECON202 Book Notes Chapter 2 1)...

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ECON202 Book Notes Chapter 2 1) Scarcity, Choice and Economic systems a) Opportunity cost i) What we forgo when we make a choice (1) What we give up for opportunity ii) Individual opportunity cost (1) When alternatives to a choice are mutually exclusive, only the next best choice – the one that would actually be chosen – is used to determine the opportunity cost of the choice (2) Example: (a) College (i) Cost of payment for work during the years of schooling for a better job iii) Explicit costs (1) Dollars sacrificed – and actually paid out – for a choice (a) $$$$ for tuition iv) Implicit costs (1) The value of something sacrificed when direct payment is made (a) Time spent in school vs. a time spent working (i) Forgone income v) Opportunity cost includes both implicit and explicit costs vi) The explicit costs of a choice may only be part of the opportunity cost of a choice b) Opportunity Cost and society i) Resources are scarce Page 1 of 7
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ECON202 Book Notes Chapter 2 ii) Virtually all production carries an opportunity cost (1) To produce more of one thing, society must shift resources away from producing something else (a) Tanks vs. Wheat iii) Production possibilities frontier (PPF) (1) A curve showing all combinations of two goods that can be produced with the resources and technology currently available (2) iv) Increasing opportunity cost (1) Law of increasing opportunity cost (a) The more of something we produce, the greater opportunity cost
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ECON202 - Chapter 2 - ECON202 Book Notes Chapter 2 1)...

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