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EC 201 9-3-08 - o 3 Increases in Size Quality of Labor...

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EC 201 9-3-08 Opp. Cost – best decisions : compare all benefits & all costs Opp. Cost what you give up- some measured easily, some not Opp. Cost of coal-based electricity = wage of workers + cost of coal + cost of facility Explicit costs – but additional implicit costs Harder to measure – hurricanes – melting ice caps – emphysema – dead fish Production possibilities frontier- downward slope →scarcity + choice More of one; have to give up other o Wasteful=feasible o Efficient= infeasible with current resources & technology How to push out ppf (↑ productive capacity)? o 1. Technological Improvements A. improved processes for existing goods B. new goods o 2. Capital Investment-machinery – factory buildings- computers – railroad cars – delivery vans- office buildings – warehouses 1 & 2 often times tech. improvements embodied in capital investments
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Unformatted text preview: o 3. Increases in Size + Quality of Labor Force More workers More skills “human capital” • How to ppf inward? o 1348 Black Death o 1944 Germany – hurricanes – earthquakes – wars o Slope of ppf + opp. Cost o Special resources + tech. same →ppf straight o OC of 1 W = 1 G o OC of 1 G = 1 W o Sausage links + sausage patties o Same resources + tech. but patty is 2x as big 2 links = 1 patty o OC of 1 L = ½ P OC of 1 P = 2 L - reciprocal relationship o OC of good on horizontal axis is – slope ppf So far straight ppf → constant slope → constant OC More general case : resources + technology are specialized In general case of different resources + tech. ppf is concave “principle” of increasing opp. Cost OC of a good ↑ as we produce more + more...
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EC 201 9-3-08 - o 3 Increases in Size Quality of Labor...

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