Advanced Placement Microeconomics - Weebly
Transcript of Advanced Placement Microeconomics - Weebly
![Page 1: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/1.jpg)
Chapter 1
Economics:
The World Around
You
Economics, 7th Edition
Boyes/Melvin
![Page 2: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/2.jpg)
What is Economics?
–Perhaps…unintended consequences.
![Page 3: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/3.jpg)
Unintended consequences
• Why, with better safety features in cars
like anti-lock brakes air bags, are car
accidents increasing?
![Page 4: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/4.jpg)
Unintended consequences
• Why, with better safety features in cars
like anti-lock brakes air bags, are car
accidents increasing?
• People drive more recklessly, knowing that
the safety features in their car will probably
prevent a fatality.
![Page 5: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/5.jpg)
2.How Could Cash for Clunkers Be Bad for the
Environment?
• The Cash for Clunkers Program is supposed to get old cars off the road and replace them with new, more efficient cars.
• Actually, Cash for Clunkers will result in more clunkers staying on the road longer.
• How can that be?
![Page 6: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/6.jpg)
2.How Could Cash for Clunkers Be Bad for the
Environment?
• Clunkers turned in for the program ended up in junkyards. There was an increase in the supply of parts available for older cars, and people repaired cars that might have been scrapped otherwise.
![Page 7: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/7.jpg)
4. Economic Mysteries: Red Light Camera
• In Duluth Georgia, red light cameras are credited with improving safety as drivers became more cautious at intersections.
• But in 2009 the city police department wants to eliminate these safety devices.
• Why would the police - - people hired to protect the public safety - - want the roads to be more dangerous?
![Page 8: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/8.jpg)
4. Economic Mysteries: Red Light Camera
• In Duluth Georgia, red light cameras are credited with improving safety as drivers became more cautious at intersections.
• But in 2009 the city police department wants to eliminate these safety devices?
• Why would the police - - people hired to protect the public safety - - want the roads to be more dangerous?
• $$$$$$$$$$$$$$$$$$$$$$$$$$$$$
![Page 9: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/9.jpg)
Notes for Chapter 1
![Page 10: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/10.jpg)
Definition of Economics
• Economics is the study of how scarce
resources are allocated among
unlimited wants.
![Page 11: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/11.jpg)
• Scarcity: situation in which there is not enough of something for everyone who wants it for free (at a zero price)
• What is scarce?
Scarcity is the basic economic problem.
![Page 12: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/12.jpg)
Scarcity, Goods and Bads
• An item that costs something is called scarce.
– economic goods—these include goods and
services that have a positive price.
– A free good is a good for which there is no scarcity.
![Page 13: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/13.jpg)
• An economic bad is anything you would
pay to get rid of (pollution, disease,
garbage)
![Page 14: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/14.jpg)
Human Nature and Reality
• People have unlimited wants.
• People have limited resources to acquire
the things they want.
• As a result, they must make choices.
![Page 15: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/15.jpg)
Rational Self-Interest
• Economists believe that people choose options
that give them the greatest satisfaction.
![Page 16: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/16.jpg)
• This means that people:– use all available time and information,
– weigh the costs and benefits of all available alternatives,
– and choose the alternative that they believe will bring them the
most benefit at the lowest cost.
– This is the alternative that they believe will bring them the most
utility, or satisfaction.
![Page 17: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/17.jpg)
• This does not mean that people are
innately selfish. Self-interest is not greed!
![Page 18: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/18.jpg)
Decisions are often made at the
margin.• Marginal cost
• Marginal benefit
• How many hours do you study for an
exam? What is the MC/MB of each hour?
![Page 19: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/19.jpg)
Implications
• Costs and benefits are sometimes referred to as
negative and positive incentives. Hence
incentives matter.
![Page 20: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/20.jpg)
TEN PRINCIPLES OF ECONOMICS 20
• Incentive: something that induces a
person to act, i.e. the prospect of a reward
or punishment.
Examples:
– When gas prices rise, consumers buy more
hybrid cars and fewer gas guzzling SUVs.
– When cigarette taxes increase,
teen smoking falls.
![Page 21: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/21.jpg)
You are selling your 1996 Mustang. You have already
spent $1000 on repairs.
At the last minute, the transmission dies. You can pay
$600 to have it repaired, or sell the car ―as is.‖
In each of the following scenarios, should you have the
transmission repaired? Explain.
A. Blue book value is $6500 if transmission works,
$5700 if it doesn’t
B. Blue book value is $6000 if transmission works,
$5500 if it doesn’t
A C T I V E L E A R N I N G 1
Applying the principles
21
![Page 22: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/22.jpg)
Cost of fixing transmission = $600
A. Blue book value is $6500 if transmission works,
$5700 if it doesn’t
Benefit of fixing the transmission = $800
($6500 – 5700).
It’s worthwhile to have the transmission fixed.
B. Blue book value is $6000 if transmission works,
$5500 if it doesn’t
Benefit of fixing the transmission is only $500.
Paying $600 to fix transmission is not worthwhile.
A C T I V E L E A R N I N G 1
Answers
22
![Page 23: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/23.jpg)
Observations:
• The $1000 you previously spent on repairs
is irrelevant. What matters is the cost and
benefit of the marginal repair (the
transmission).
• The change in incentives from scenario A
to scenario B caused your decision to
change.
A C T I V E L E A R N I N G 1
Answers
23
![Page 24: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/24.jpg)
Positive vs. Normative Economics
• Positive Economics
– Focuses on “what is”.
– Analyzes actual, measurable outcomes.
– Does not impose value judgments, person feelings
or convictions.
– Positive economics is economics as a science.
![Page 25: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/25.jpg)
• Normative Economics
– Focuses on what someone thinks “ought to be” or
“should be”.
– Makes ethical judgments—value judgments.
![Page 26: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/26.jpg)
Common Analytical Mistakes (Logical
Fallacies)
• Association is not Causation
– The mistaken assumption that because two
events occur together, one must cause the
other. Also given as ―correlation is not
causation‖.
![Page 27: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/27.jpg)
• With a decrease in the number of pirates, there
has been an increase in global warming over the
same period. Therefore, global warming is
caused by a lack of pirates.
![Page 28: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/28.jpg)
Common Analytical Mistakes (Logical
Fallacies)
• Fallacy of Composition
– The mistaken assumption that what is true of
a part is also true of the whole.
• Atoms are not visible to the naked eye
• Humans are made up of atoms
• Therefore, humans are not visible to the naked
eye.
![Page 29: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/29.jpg)
Fallacy of Composition
• The paradox of thrift:
• If one person saved 50% of his earnings,
he would be better off one year from now.
• If all people saved 50% of their earnings,
we would all be better off one year from
now. WRONG!! (why?)
![Page 30: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/30.jpg)
Common Analytical Mistakes (Logical
Fallacies)
• Violation of Ceteris Paribus
– Ceteris Paribus: Latin for “all else equal”.
– This occurs when one attempts to analyze the effect
of one thing while holding everything else constant,
when in fact other things have changed.
![Page 31: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/31.jpg)
Micro vs. Macro
• Microeconomics
– Studies the economy at the level of individual
consumers, workers, firms, goods, and
markets
• Macroeconomics
– Studies the economy at the level of the
economy as a whole.
– Examines total consumer behavior, total
employment, total production, total sales, etc.
![Page 32: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/32.jpg)
.
Good is a physical object (tangible) that can be purchased.
[These can be seen and felt – car, book]
Product
Service is useful labor done for a fee (intangible).
[These are activities, not items – lawyer or doctor services]
Are the following a good or a service?Watch? Watch Repair? Hamburger? Education? Basketball?
Clothing? Bicycle? Hair cut? Garbage pickup? Jumpdrive?
Producers (suppliers) – people who make goods/svcs.
Consumers – people who buy and use goods/services.
Producer Consumer
3
4
2
Econ
![Page 33: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/33.jpg)
• 3 Economic Questions and Factors of
Production
![Page 34: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/34.jpg)
The Three Basic Questions
1. What To Produce?
1. How To Produce?
2. For Whom To Produce?
![Page 35: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/35.jpg)
• Command Economies: North
Korea, China, Vietnam
–Government makes most if
not all of the economic
decisions
–Known as communism and
socialism
![Page 36: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/36.jpg)
• Traditional Economies:
– Tribal
– Decisions made by producing what has
always been made, innovation is not favored
![Page 37: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/37.jpg)
• Free Market (capitalist) economies
– US comes close to this
– Producers and consumers make economic
decisions
– AKA Free Enterprise
![Page 38: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/38.jpg)
Command Mixed or
Socialist
Pure market, free
enterprise or Capitalist
On a scale, the command economy goes to
the left and the market economy goes to the
right.
TOTALgovernment
control
NO government
control
Almost all economies in the world fall
somewhere on this line between total
and no government control.
![Page 39: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/39.jpg)
Command Mixed or
Socialist
Pure market, free
enterprise or Capitalist
TOTALgovernment
control
NO government
control
Is the United States a Pure Market
Economy??
No. The U.S. would probably fall
here on this scale regarding the
amount of government control
over business.
![Page 40: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/40.jpg)
Resources
• Those things that we use to produce, also called the Factors of Production or inputs. They fall into three basic categories:
– LAND
– LABOR
– CAPITAL GOODS
All Organized by an ENTREPRENEUR
![Page 41: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/41.jpg)
Factors of Production
•LAND: gifts of nature, not man-made
•Make a list of 5 examples of natural resources used in
production;
![Page 42: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/42.jpg)
LABOR: human efforts, abilities and/or
skills; includes both blue and
white collar
Make a list of 5 labor positions used in production
Factors of Production
![Page 43: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/43.jpg)
Factors of Production
CAPITAL: manmade tools and equipment used to
produce other goods or services
(physical) Capital is not money!
Make a list of 5 capital goods used in production
![Page 44: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/44.jpg)
Turning Resources into goods
and services
Entrepreneurs G and SResources + =
![Page 45: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/45.jpg)
Payments for Resources
![Page 46: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/46.jpg)
• Utility Game to introduce Circular Flow!!!
![Page 47: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/47.jpg)
Economic Models
• Economists use models, graphs, charts and pictures to help illustrate economic concepts and relationships.
![Page 48: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/48.jpg)
Circular Flow
• an economic model
that shows the
interdependent
relationship between
households and firms
![Page 49: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/49.jpg)
Market:
• Place or
service that
allows the
exchange of
goods,
services, or
factors of
production.
![Page 50: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/50.jpg)
• Household – the consuming units in an economy; a.k.a. consumers, individuals
• The Goal of a Household: satisfy needs and wants by earning money to buy goods and services
![Page 51: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/51.jpg)
• Firm – the organization that transforms resources (factors of production) into products (goods and services); a.k.a. producers, businesses
• The Goal of a Firm: make a profit from the sale of goods and services
![Page 52: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/52.jpg)
• Product Market– the market in which goods and services are exchanged
• Factor Market– the market in which resources used in production are exchanged; a.k.a. Resource Market
![Page 53: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/53.jpg)
FIRMS HOUSEHOLDS
$$$$$$
GOODS and SERVICES
CAPITAL, LAND,
LABOR
INTEREST,
WAGES, RENT
Factor Market
Product Market
![Page 54: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/54.jpg)
Links Smiles
Round 1
Round 2
Round 3
Round 4
![Page 55: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/55.jpg)
Links and Smiles Experiment
• Prepare:
• Each person needs 2 sheets of paper, scissors
and tape
• Prepare the paper:
• Fold the two most distant ends together
• Fold the new most distant ends together
• Undo the last fold and fold each of the most
distant ends in so that they touch the center line
![Page 56: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/56.jpg)
Continued…
• Choose one side of the ―swinging door‖
and fold it into the middle again.
• Unfold the papers and cut along the
creases. Also, cut the wider strips in half
width-wise. You should then have 16
strips and 16 rectangles.
![Page 57: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/57.jpg)
Links and Smiles
• Every person is a manufacturer of links and
smiles.
• A link is a strip of paper wrapped into a circle
and taped in place. (like a Christmas chain)
• Smiles are made by cutting squares into circles
and drawing 2 eyes and a smile on each
• Only one piece of paper can be cut at a time.
![Page 58: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/58.jpg)
Rules
• Strips and squares can be altered for the alternative use. Strips can be taped together and cut in half to make squares, and therefore smiles. Squares can be taped together and cut lengthwise to make strips, and therefore links.
• Each round: 4 strips, 4 squares, scissors, tape.
• Cut only one layer of paper at a time.
![Page 59: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/59.jpg)
Rules
• Each round is 70 seconds.
• Record your production in the chart for each
round.
![Page 60: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/60.jpg)
Production Goals
• Round 1: make 4 smiles and as many
links as you can
• Round 2: make only links
• Round 3: make only smiles
• Round 4: make one smile and as many
links as you can
![Page 61: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/61.jpg)
Graph Your Results
• Smiles on horizontal axis
• Links on vertical axis
• Congratulations!! You’ve just created your
first production possibilities curve!!
![Page 62: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/62.jpg)
Notes: What is a PPC?
• Production Possibilities Curve
• Graphical representation of the opportunity cost of using scarce resources to produce one good instead of another good.
• Shows efficiency: using all resources to
their fullest potential
![Page 63: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/63.jpg)
PPC Assumptions
• Resources are fixed: (you can’t get more
paper, scissors, labor, etc)
• All resources are being used fully
• Only 2 things can be produced
• Technology is fixed: no improvements in
efficiency
![Page 64: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/64.jpg)
Notes:
• Points along the PPC are efficient
• Points underneath the PPC show
underutilization: producing fewer goods
than possible
• Points above PPC show impossible levels
of production
![Page 65: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/65.jpg)
A
B
C
Consumer Good [iPhones]
Consumer Good [iPods]
Cap
ital G
oo
d 10
4
7
5 6
3 Cap
ital G
oo
d [
Ro
bo
ts]
![Page 66: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/66.jpg)
What are increasing vs.
constant opp costs?• Constant: OC is same throughout PPC
(straight line)
![Page 67: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/67.jpg)
Constant Opportunity Cost
1 Corn = 1 Tomato
The STRAIGHT LINE shows the two products
Are “equally substitutable”, that is, they are
not specialized in particular uses, so the
opportunity costs will remain constant.
![Page 68: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/68.jpg)
Increasing OPP costs: As I increase
production of one good, I need to give up
greater and greater amounts of the other.
WHY?
Resources aren’t similar, they need to be
adapted.
This causes the PPC to be ―bowed out.‖
![Page 69: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/69.jpg)
Possibilities-A, B, C, D, & E
Capital (robots) vs. Consumer (pizza)Goods
![Page 70: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/70.jpg)
Pizzas
Ind
ustr
ial R
ob
ots
Attainable
0 1 2 3 4 5 6 7 8 9
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Unattainable
A
B
C
D
E
Economic Growth1. More/better
resources
2. Better technology
Now Attainable
A’
B’
C’
D’
E’
Production Possibilities Curve
![Page 71: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/71.jpg)
e
- ability to produce a larger total output over time.
Cap
ita
l G
oo
ds
[Ro
bo
ts]
C
0 Consumer Goods [Pizza]
a
d
f
b
![Page 72: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/72.jpg)
D
41. At what letter is there unemployment [recession]?42. What letters represent resources being used in their
most productive manner? [full employment, fullproduction, and best available technology]
43. What letter represents an improvement in technology,therefore a new PPC frontier line?
44. The (straight line/curve) illustrates the “line of increasing cost”?
45. The (straight line/curve) illustrates the “law of constant cost.”46. At what letter would there be the most economic growth in
the future if a country were producing there now?What is the opportunity cost when moving from “C” to “A”;B to C; & do we have to give anything up when moving from D to B?
D
A, B, or C
E
AConsumption
Capital no
Consumption Goods
Cap
ital G
oo
ds E
C
B
A More or better resources or better technology
![Page 73: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/73.jpg)
What is the marginal opportunity cost of the first
coat?___________belts
What is the marginal opportunity cost of
the fourth coat?___________belts
What is the marginal opportunity cost of
the third coat?___________belts
What is the marginal opportunity cost of
the second coat?___________belts
What is the marginal opportunity cost of
the fifth coat?___________belts
![Page 74: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/74.jpg)
What is the marginal opportunity cost of the first
belt?___________coat
To find marginal opportunity cost,
use this equation:
#given up/#gained
From 0 belts to 1 belt, the oc is 1/40
of a coat.
From 40 to 41 belts, the oc is 1/30 of a
coat.
From 70 to 71 belts, the oc is 1/15 of a
coat.
From 85 to 86 belts, the oc is 1/10 of a
coat.
From 95 to 96 belts, the oc is 1/5 of a
coat.
![Page 75: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/75.jpg)
![Page 76: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/76.jpg)
Comparative and Absolute
Advantage• Comparative advantage: having a lower
opportunity cost of production than
someone else
• Absolute advantage: being able to
produce a large quantity of something or
use fewer resources to produce a good
![Page 77: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/77.jpg)
Guns Butter
Country 4 0
Of 3 4
Nerc 2 6
1 8
0 12
Country Guns Butter
Of 10 0
Oodles 9 2
8 4
7 6
6 8
5 10
4 12
3 14
2 16
1 18
0 20
Comparative
Advantage
Questions: Output
Method
![Page 78: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/78.jpg)
![Page 79: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/79.jpg)
Which country has the absolute advantage in guns?
Which country has the absolute advantage in butter?
![Page 80: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/80.jpg)
Does this means the countries wouldn’t benefit by
trading?
NO!! Comparative advantage is what counts.
![Page 81: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/81.jpg)
Consider the extremes: If Oodles produced ONLY
guns or ONLY butter, how much could they
produce?
For every gun produced, 2 butters must be given up.
1B=1/2 G
For every butter produced, ½ gun must be given up
![Page 82: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/82.jpg)
Consider the extremes: If Nerc produced ONLY guns or ONLY
butter, how much could they produce?
4G=12B
1G=3B
1B=1/3G
![Page 83: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/83.jpg)
Nerc:
1G=3B 1G=2B
1B=1/2G
Oodles:
1B=1/3G
![Page 84: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/84.jpg)
Nerc:
1G=3B 1G=2B
1B=1/2G
Oodles
1B=1/3G
What would be an acceptable term of trade?
![Page 85: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/85.jpg)
Wine 1 bottle Cheese 1 pound
2 hours 3 hours
Wine 1 bottle Cheese 1 pound
1 hour 1 hour
France
US
Input, or
Resource
Comparative
Advantage
Question…
Consider how many resources it takes to make each item.
For the US in1 hour, 1 wine or 1 cheese can be produced.
So
1W=1C
And
1C=1W
![Page 86: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/86.jpg)
Wine 1 bottle Cheese 1 pound
2 hours 3 hours
Wine 1 bottle Cheese 1 pound
1 hour 1 hour
France
US
Input, or
Resource
Comparative
Advantage
Question…
Consider how many resources it takes to make each item.
For France in 2 hours, 1 wine or 2/3 cheese can be
produced, so
1W=2/3C
And
1 C=3/2 W
![Page 87: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/87.jpg)
Wine 1 bottle Cheese 1 pound
2 hours 3 hours
Wine 1 bottle Cheese 1 pound
1 hour 1 hour
France
US
Input, or
Resource
Comparative
Advantage
Question…
SO, what should each country do?
France make wine, US make cheese, and trade.
Term of trade?
![Page 88: Advanced Placement Microeconomics - Weebly](https://reader031.fdocuments.net/reader031/viewer/2022012411/616ad659982ef45eac136f72/html5/thumbnails/88.jpg)
END OF
UNIT
1!!!!!!!!!!!!!