Economics 102 -Intro

Microeconomics Introduction

What axis is price on?

Vertical Axis

What is economics?

The study of the allocation of scarce resources among competing and insatiable needs, to maximize welfare.

Broad Categories of Inputs

1. Land

2. Labor

3. Capital

Land

National resources and raw materials such as plants, animals, water, air and etc.

Labor

The human input, the workers.

Capital

Physical tools of production. (BUT not money)

Investements

Purchases of new capital goods

Scarcity

Unlimited wants, but limited resources, leading to limited amounts of goods and services.

Opportunity Cost

The value of the next best alternative (what’s given up)

Production Possibilities Frontier

Shows maximum combinations of 2 goods an economy is able to produce with existing resources and technology.

Trade Off

Giving up one good to obtain more of another good

Attainable Combinations

Combinations of goods that fall below line of maximum goods to be made.

Un-employment of Resources

Not using all available resources, thus leading to less than maximum outputs.

Full Employment of Resources

Using all available resources to produce maximum amount of outputs.

Productive Efficiency

Not being able to produce any more of any goods (making max of each).

Productive In-efficiency

Possible to produce more of both products.

Allocative Efficiency

The combination of goods that satisfies what society most desires.

Marginal Opportunity Cost

Amount of goods that must be given up to gain one additional kind of good.

Marginal Opportunity Cost Formula

Gave up / Gained

Constant Opportunity Cost

A straight line where resources are not specialized and the opportunity cost will stay the same.

What causes a shift in the Production Possibilities Frontier (PPF)?

Increase in quantity of inputs and improvement in technology.

Absolute Advantage

Producing the same product as others with fewer resources.

Comparative Advantage

Lower opportunity cost than others for the same work.

What is the expected shape of a production possibilities frontier graph?

Concave Shape