1. Introduction to Economics 1. The Economic Problem Wants and Needs A want is a desire for a good or a service. The desire may be to satisfy hunger or thirst‚ avoid heat or cold‚ be cured of illness‚ be amused or entertained‚ or enjoy that latest product of technology. The item involved may not be within the means of the person who wants it. In economics it is assumed that a person’s wants are unlimited. People are assumed to desire an unlimited array of goods and services. A need is
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limited resources and available technology‚ as they use more of their resources for corn production‚ there are fewer resources available for breeding poultry. Maximum annual output options | Quantity of Corn(pounds) | Quantity of Poultry(pounds) | 1 | 1200 | 0 | 2 | 1000 | 300 | 3 | 800 | 500 | 4 | 600 | 600 | 5 | 400 | 700 | 6 | 200 | 775 | 7 | 0 | 850 | 1. Draw a production possibility frontier with corn on the horizontal axis and poultry on the vertical axis illustrating these
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example‚ $ 20 spent on a CD could have been used to buy a T-shirt. The monetary cost is $ 20 but the opportunity cost is the T-shirt. Opportunity Cost The concept of opportunity cost can be easily illustrated using a model called the production possibility frontier. - The model is a graph which shows all the combinations of goods and services that can be produced by an economy given the available resources and level of technology. Static Model :This model is called a ‘static
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PRODUCTION POSSIBILITY CURVE. In economics‚ the Production Possibility Curve (PPC) is based under the field of macroeconomics. The production possibility curve (PPC) is also termed as the production possibility frontier (PPF)‚ a production possibility boundary or sometimes called product transformation curve. It is defined as a curve that illustrates the possibility of producing two goods or services within a specified time with all the resources given such as (labour‚ land‚ capital and the technical
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FOE_C02.qxd 1/15/07 14:45 Page 16 »2 The production possibility frontier (curve): the PPF or PPC The starting point in our economic analysis is to consider what an economy can produce. As consumers we may want many things‚ but there is a limit to what our economy can actually produce. This can be analysed using the production possibility frontier (PPF). In this unit we examine the factors that determine how much an economy can produce and the implications of different output decisions
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country can produce three cars or two televisions. Assume that Home has four workers. a. Graph the production possibilities frontier for the home country. b. What is the no‐trade relative price of cars at Home? 2. Suppose that each worker in the Foreign country can produce two cars or three TVs. Assume that Foreign also has four workers. a. Graph the production possibilities frontier for the Foreign country. b. What is the no‐trade relative price of cars in Foreign? c. Using the information provided in Problem 1 regarding Home
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decided to increase military production? Explain your answer using the concepts of economic efficiency and opportunity costs. The Production Possibilities Frontier is best described as a line demonstrating the maximum level of production of one good for every production level of some other good. It is a graphical device used to illustrate the concepts of scarcity & how it necessitates choice‚ as well as opportunity cost. The PPF demonstrates the presence‚ or possibility of‚ scarcity and the inability
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rates on people with higher incomes f. Instituting laws against driving while intoxicated 4. Imagine a society that produces military goods and consumer goods‚ which we’ll call “guns” and “butter.” a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost‚ explain why it most likely has a bowed-out shape. b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient.
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considered opportunity costs. Now lets look at Opportunity Cost from the point of production. Opportunity costs may be assessed in the decision-making process of production. If the workers on a farm can produce either one million pounds of wheat or two million pounds of barley‚ then the opportunity cost of producing one pound of wheat is the two pounds of barley forgone (assuming the production possibilities frontier is linear). Firms would make rational decisions by weighing the sacrifices involved
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utility should also be considered opportunity costs. Opportunity costs may be assessed in the decision-making process of production. If the workers on a farm can produce either one million pounds of wheat or two million pounds of barley‚ then the opportunity cost of producing one pound of wheat is the two pounds of barley forgone (assuming the production possibilities frontier is linear). Firms would make rational decisions by weighing the sacrifices involved. Explicit costs Explicit costs are
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