ECO 2030 1st Edition Lecture 4 Outline of Last Lecture I. 10 Principles of Economics and Introduction to economic models.Outline of Current Lecture II. Assumptions and modelsIII. Elements of Circular-Flow DiagramIV. The Production Possibilities Frontier Model (PPF)Current LectureI. Assumptions and models:A. Both serve to simplify a complex realityII. Models - highly simplistic visual representation of complex economic scenarios. A. Think of a road map as an exampleTerms to Know: I. Business cycle: Simply refers to whether the economy is growing or shrinking (fluctuation)II. Factors of production: Labor, land and capital (meaning, building, machines ect).The Circular-Flow Diagram I. A simplistic model of how our economy works by depicting the flow of money between actors in the economy. A. Key Assumption: Government plays no role.B. Includes: Two types of actors, households and firms; and two markets, the goods and services, and the market factors of production.C. Explained: Households exchange “factors of production) e.g. labor for a salary. Firms get/hire the “factors of production” which produces goods and services that households buy. That is the “circular-flow”.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.● Green = $ (flows of income/payments)● Red = products and factors of production (goods, services and labor, buildings, machines)● Remember, government involvement is excluded in this model for simplicityThe Production Possibilities Frontier Model (PPF)I. A model that depicts a choice the economy has to make with producing two goods with the given resources and technologies. eg. Two Goods: Computers and Wheat. One resource: Labor (hours). The choice is how much would an economy devote to either product; only produce computers and no wheat or vice versa or something inbetween.● The example above shows the choices we have from A to E. If the economy chose to only produce wheat and no computers, they would be at point B. However, if the economy chose to only produce computers and no what they would be at point A. If they devoted half of their resources (in this case labor hours) to both producing computers and wheat, they would be at point C. ● Note; achieving an outcome of 2000 tons of what and 200 computers (approximately where the red dot is located is possible, however it is not efficient because it is not maximizing available resources (labor hours). On the other hand producing 4000 tons of what and 350 computers (approximately where the red dot is) is not achievable due to resource constraints (available labor hours).The Production Possibilities Frontier Model (PPF) - to be continued next
View Full Document
Unlocking...