Econ 130 Essay

1462 words - 6 pages

Chapter 1: The Core Issues
Dr. Yu
ECON130

Principles of Microeconomics

What Is the Economy?

1. The Economy is us.
2. It is the grand sum of all our production
and consumption activities.
3. For the United States, it is the collective
behavior of the 320 million individuals who
participate in it.

The Core Issues

The purpose of an economy is to produce
goods and services that satisfy peoples’
wants using the limited resources
available.
Wants

Limited

Resources

Unlimited

What do you want in your life?

Scarcity: The Core Problem
Scarcity: lack of enough resources to satisfy
all desired uses of those resources.

Three Core Issues
What to produce ...view middle of the document...

The forgone next beset alternative.
– Whatever you give up to take a chosen activity.

Exercise: “Guns versus Butter”

More

?

More

?

North Korea vs. South Korea

Opportunity Cost
Why the country can spend billions of dollars on a nuclear
weapons program but needs millions of dollars in UN aid each
year to feed its people?

Production Possibilities

Production possibilities: the various
combinations of final goods and services
that could be produced in a given time
period with all available resources and
technology.

Trucks vs. Tanks

OUTPUT OF TRUCKS

Production Possibilities Curve (PPC)

5

A
B

4

C

3

D

2

E

1
0

Point Trucks Change Tanks
A
5
0
B
4
-1
2.0
C
3
-1
3.0
D
2
-1
3.8
E
1
-1
4.5
F
0
-1
5.0

1

2

3

4

OUTPUT OF TANKS

F
5

Change
+2
+1
+0.8
+0.7
+0.5

Think-Pair-Share Time

activity 1

5

A

4

C

3

D

2

E

1
0

Point activity 1 Change activity 2 Change
A
5
0
B
4
-1
2.0
+2
C
3
-1
3.0
+1
D
2
-1
3.8
+0.8
E
1
-1
4.5
+0.7
F
0
-1
5.0
+0.5

B

1

2

3

activity 2

4

F
5

Law of Increasing Opportunity Costs

The opportunity cost of producing
additional units of one good increases.
– Each time we give up one truck, we get less
back in tank production.

Law of Increasing Opportunity Costs
1

Law of
Increasing
Opportunity
Costs
3

Resource Specialization
Good tank resources are shifted first
2

Increasing waste
Later shifts involve resources less
good for tank production

PPC Shape
The increasing opportunity costs account
for the bowed shape of the PPC

Law of Increasing Opportunity Costs

OUTPUT OF TRUCKS

5

A

Step 1: give up one truck

B

4

3
2

Step 2: get two tanks

Step 3: give up another truck

C

Step 4: get one more tank

D

E

1
0

1

2

3

OUTPUT OF TANKS

4

5

F

Production Possibilities Curve (PPC)
The PPC illustrates two essential principles:
Scarce Resources
There is a limit to the
amount we can
produce in a given
time with available
resources and
technology

Opportunity Costs
We can obtain
additional quantities
of one of the goods
only by reducing
production of another
good

Is there anything in the world such as a free lunch?

Efficiency and the PPC
• Efficiency: maximum output of a good from
the resources used in production.
• Every point on the production possibilities
curve is a point of efficiency.

Surveying Points on the PPC
OUTPUT OF TRUCKS

5

A

X

4

B

3

Y

2

1
0

Points outside the PPC
are unattainable with
available resources and
technology.

C

Points inside the PPC
represent incomplete
or inefficient use of
available resources.

1

2

3

4

5

OUTPUT OF TANKS

Only points on the PPC represent maximum efficient use of our production
possibilities.

Economic Growth
1

An...

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