BU-224 Micro Economics – Week 2 Seminar Welcome to

Overview  Welcome  Review of Week 1 Material  Questions  Unit 2 Material  Questions  Preview of Unit 3  End

Review of Unit 1  Scarcity  Opportunity Cost  Trade-Offs  Cost/Benefit  Marginal Cost Analysis

 Limited resources  Choices must be made  Opportunity Cost  The value of the next best alternative  Marginal analysis Scarcity

Opportunity Cost Retrieved from Retrieved from

Example of cost of education  Annual salary - $50,000 (Implicit)  Tuition - $25,000 (Explicit)  2 years of graduate school - $100,000 in salary and $50,000 in tuition  Total opportunity cost - $150,000 (Implicit & Explicit)  Future marginal income of working life should be higher Opportunity Cost

Trade offs Cost vs. Benefits

Marginal Cost Analysis  Efficiency in resource allocation  Analysis of benefits and costs of the marginal unit of good or input  Maximization of utility subject to a budget contraint

Questions

Overview  Welcome  Review of Week 1 Material  Questions  Unit 2 Material  Questions  Preview of Unit 3  End

Unit 2 Material  Economic Model  Production Possibilities Frontier  Comparative vs. Absolute Advantage  Circular Flow Diagram  Homework Assignment  Discussion Question

Economic Model

Unit 2 Material  Economic Model  Production Possibilities Frontier  Comparative vs. Absolute Advantage  Circular Flow Diagram  Homework Assignment  Discussion Question

Unit 2 Material  Economic Model  Production Possibilities Frontier  Comparative vs. Absolute Advantage  Circular Flow Diagram  Homework Assignment  Discussion Question

Since all economies are faced with scarcity, how might nations attempt to minimize the human hardship associated with scarcity? Try to use concepts seen in this unit such as production possibilities frontier, comparative advantage, circular flow, etc. in your answer. Discussion

Assignment St Atanagio is a remote island in the Atlantic. The inhabitants grow corn and breed poultry. The accompanying table shows the maximum annual output combinations of corn and poultry that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for corn production, there are fewer resources available for breeding poultry.

Draw a production possibility frontier with corn on the horizontal axis and poultry on the vertical axis illustrating these options, showing points 1–7. Can St. Atanagio produce 650 pounds of poultry and 650 pounds of corn? Explain. Where would this point lie relative to the production possibility frontier? Assignment

What is the opportunity cost of increasing the annual output of corn from 800 to 1000 pounds? What is the opportunity cost of increasing the annual output of corn from 200 to 400 pounds? Can you explain why the answers to parts c and d are not the same? What does this imply about the slope of the production possibility frontier? Assignment

Thank you for attending. I look forward to seeing you next week!