But Economic Growth Also Has Opportunity Costs!
But economic growth also has opportunity costs! (Let TA handle in recitation)
An important factor responsible for economic growth is an increase in capital
Capital goods long-lasting tools used to produce final/consumption goods (goods that are used up)
But capital itself has to be produced by the use of other resources (e.g. tractors, R & D)
More capital a society produces today higher will be future output of final goods growth in the output of final goods => PPF will push out further.
The further out the PPF pushes over time greater will be future output.
Higher capital goods production => sacrificing some current final goods. More current resources need to be devoted to producing capital goods that make economic growth possible.
E.g. Economic growth due to new technologies => Use resources for research & development (R&D) => Trade-off: less consumer goods this year
Current period final goods foregone = opportunity costs of economic growth
So, society faces a tradeoff:
Less current period consumption vs more current resources for capital goods to increase future consumption
In panel (a), production is tilted toward current consumption goods, with relatively few resources devoted to production of capital goods. As a result, in the future, there will not be much of an increase in capital, so the PPF will not shift out much in the future. In panel (b), production is tilted more toward capital goods, with a greater sacrifice of current consumption. As a result, there will be a greater increase in capital, so the PPF will shift out more in the future.
International Comparative Advantage:
A nation has comparative advantage in producing a good if it can produce it at a lower opportunity cost than some other nation
Greatest total production of every good or service * When nations shift production toward their comparative advantage goods and trade with each other
United States has an absolute advantage in
An important factor responsible for economic growth is an increase in capital
Capital goods long-lasting tools used to produce final/consumption goods (goods that are used up)
But capital itself has to be produced by the use of other resources (e.g. tractors, R & D)
More capital a society produces today higher will be future output of final goods growth in the output of final goods => PPF will push out further.
The further out the PPF pushes over time greater will be future output.
Higher capital goods production => sacrificing some current final goods. More current resources need to be devoted to producing capital goods that make economic growth possible.
E.g. Economic growth due to new technologies => Use resources for research & development (R&D) => Trade-off: less consumer goods this year
Current period final goods foregone = opportunity costs of economic growth
So, society faces a tradeoff:
Less current period consumption vs more current resources for capital goods to increase future consumption
In panel (a), production is tilted toward current consumption goods, with relatively few resources devoted to production of capital goods. As a result, in the future, there will not be much of an increase in capital, so the PPF will not shift out much in the future. In panel (b), production is tilted more toward capital goods, with a greater sacrifice of current consumption. As a result, there will be a greater increase in capital, so the PPF will shift out more in the future.
International Comparative Advantage:
A nation has comparative advantage in producing a good if it can produce it at a lower opportunity cost than some other nation
Greatest total production of every good or service * When nations shift production toward their comparative advantage goods and trade with each other
United States has an absolute advantage in