ECON 1202 1st Edition Lecture 3 Outline of Last Lecture I. Microeconomics and MacroeconomicsII. Economic TermsIII. Common MisconceptionsOutline of Current Lecture I. Production Possibilities Frontiers and Opportunity Costsa. Opportunity Costsb. Economic GrowthII. Comparative Advantage and Tradea. Absolute Advantage b. Comparative Advantage Current Lecture: III. Production Possibilities Frontiers and Opportunity Costsa. A production possibilities frontier (PPF) is a curve showing the maximum attainable combinations of two products that may be purchases with available resources and technologyb. BMW can produce hybrid cars and/or SUVsi. If it wants to produce more hybrids it must reduce the number of SUVsii. Points in the PPF are attainable for BMWiii. Points above the curve are NOT attainableiv. Points below the curve are inefficient (below capacity, not taking advantage of resources)v. To produce 200 more SUVs, BMW must produce 200 fewer hybridsvi. The 200 fewer hybrids is the opportunity cost of producing 200 more SUVs1. Opportunity cost: the highest valued alternative that must be given up to engage in an activity c. Increasing marginal opportunity costsi. Opportunity costs of BMW are constant 1. BUT opportunity costs are often increasinga. Because some resources are better suited to one task than anotherThese 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.b. The first resources to switch are the ones best suited to switching ii. The more resources already devoted to an activity, the smaller the payoff of devoting additional resources to that activity. d. Economic Growth on the PPFi. As more economic resources become available, the economy can move from point A to point B (PPF shifts outwards), producing more tanks and more automobiles. ii. Shifts in the PPF represent economic growth 1. Economic growth: the ability of the economy to increase the production of goods and services a. Caused by increased in quality and quantity of factors of production e. Technological change in one industryi. Shown in graphs as two lines with the same origin but different end points. 1. When there are advances in one industry (one axis) but not the otherii. Many previously unattainable combinations are now attainable f. Example: PPF curve for exam gradesi. Suppose you have a limited amount of time to study for two exams, econ and accountingii. What would the curve look like? Bowed-outward curve because: the first hour of studying is much more valuable than the lastIV. Comparative Advantage and Tradei. Absolute advantage: the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resourcesii. Comparative advantage: the ability of an individual, a firm, or a country toproduce a good or service at a lower opportunity cost than competitors1. The basis for comparative advantage is comparative advantage, not absolute advantageiii. Individuals, firms, and countries are better off if they specialize in producing goods and services for which they have a comparative advantage and obtain the other goods and services they need by