ECON 202 1st Edition Lecture 3 Outline of Last Lecture I The 10 Principles of Economics continue II Thinking like an economist a Steps to follow in analysis III Examples Outline of Current Lecture I Circular Flow Model A Acters B Transaction C Markets II Production Possibilities Frontier PPF III Example of finding opportunity cost Current Lecture I The Circular Flow Model Description of how we model economic transactions a Actors decision makers i Firms ii Individuals Households b Transactions i Money ii Stuff items c Markets i Goods and services outputs ii Inputs stuff that goes into production factors of production II Production Possibilities Frontier PPF a PPF identifies all of the different combinations of goods and services society can produce with its resources and technology III i Resources such as labor natural resources land etc b Combination of resources on the frontier are efficient Frontier the line i Efficient can t increase production of one commodity without decreasing the production of the other commodity 1 Point D is not efficient c The area under the line show all the possible combinations i Point D is a possible combination ii Point C is not possible because there is not enough resources Example of finding opportunity cost using the graph above a If we want to increase car production from 600 700 What is the opportunity cost i For 600 cars you lose 2 000 computers ii For 700 cars you lose 2 200 computers iii The opportunity cost is 200 computers because that is how much extra computers you will lose in order to produce 100 more cars b As you increase the number of one thing you decrease the other so PPF can shif 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