- HW: read chapters 3 & 4, pp. 137-164 for Monday; HW #1 is due next Wednesday, 2/12/14- Overview: o Production Possibility Frontiers (PPFs) & opportunity cost (OC)o Absolute & comparative advantage- OC is the production (or consumption) foregone when we make decisions to produce (or consume) something elseo E.g. going to college & getting a degree:Accounting Cost Opportunity costTuition X X (could use the money for other things)Books X XRoom XBoard XSalary X- A PPF is the path of points showing the maximum amount of 2 goods that can be produced w/a given level of resources, technology & timeo Properties: Downward sloping Bowed outward (due to specialization of resources) Slope represents OC of getting one more unit of X- Slope = rise/run = ΔY/ΔX = (Y2-Y1)/(X2-X1)- If ΔX = 1 then ΔY must be the slopeo VocabularyYX Feasible, obtainable points- All points on the PPF or inside it (between the axes and the PPF) Not feasible, not obtainable points- All points beyond/outside of the PPF Efficient points- All points on the PPF Inefficient points- All points on the inside the PPFo PPF represents/illustrates: OC - When going from one point to another, the difference in X or in Y represents how much of a good you are giving up to gain more of the other (e.g. X2-X1) Scarcity (points beyond the PPF are unobtainable) Trade-offs (more of good X requires less of good Y and vice versa; trade-offs imply choices) Under-/unemploymento The law of increasing OC states that as you produce more units of one good, the OC of producing more of it increases E.g. if you are building bridges and writing books, there are some people who are better at one task than the other. If you begin by having everyone build bridges, and you move the best book-writer over to writing books, there is a small opportunity cost because they weren’t good at producing bridges.However, once you move the last bridge-builders over to writing books, there is a large opportunity cost because they were the good bridge-builders.o Economic growth of PPF- it shifts outward Shifts in a PPF are due to:- New resources- New technology- Decisions this time period affect new time periods o E.g. on a PPF with capital goods/yr and consumer goods/yr, a production bundle with more capital goods will spur more economic growth in the long run than a production bundle with more consumer goodso Current consumption vs. future
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