101 lecture 3
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![Page 1: 101 lecture 3](https://reader034.fdocuments.net/reader034/viewer/2022052601/5595b0121a28abf23d8b4718/html5/thumbnails/1.jpg)
Microeconomics
Lecture 3
Production Possibilities Frontier
Exam 1 Review
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Four Questions
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What to make?
How much to make?
Who will make it?
Who will consume it?
Four Questions
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How you slice the pie
determines the size of
the pie
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Who decides?Government
orIndividuals
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Planned Economyvs.
Market Economy
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Planned Economyvs.
Market Economy
Government Economyvs.
Individual Economy
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Adam SmithMarket Economy
Individual Economy
Karl MarxPlanned Economy
Government Economy
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Adam Smith
The Wealth of Nations
1776
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Invisible Hand
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Invisible Hand
individualself interestpromotes
wealth
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Price System is a
Knowledge System
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Voluntary Exchange
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buyer and seller both win
Voluntary Exchange
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Every Exchange
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One PriceTwo values
Every Exchange
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What can government do?
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Protect property rights
What can government do?
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Property Rights
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the ability of an individual to own
and control resources
Property Rights
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It’s cheaper to pay someone else than
to do it myself
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It’s cheaper to pay someone else than
to do it myself
Opportunity Cost is too high
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Production Possibilities Frontier
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iPhone
Production Possibilities Frontier
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iPad
iPhone
Production Possibilities Frontier
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New innovationhelps iPhone
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New innovationhelps iPhone
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New innovationhelps iPhone
New innovationhelps both
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New innovationhelps iPhone
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New innovationhelps both
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New innovationhelps both
Now possible
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Exam 1 review
• Terms and Concepts
• Formulas
• Blog
• Book
• 25 multiple choice questions
• No cell phones - bring calculator
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Terms and Concepts• Scarcity
• Choices
• Tradeoffs
• Rational
• Incentives
• Behavior
• Utility
• Margin
• Markets
• Circular-Flow Diagram
• Production Possibilities Frontier
• Macro vs. Micro
• Positive vs. Normative
• Absolute Advantage
• Comparative Advantage
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Formulas
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Formulas
Percentage Change
% ∆New - Old
Old