Copyright eStudy.us 2010 michael.roberson@eStudy.us Opportunity Cost – The best alternative sacrificed for a chosen alternative The most money that you could be making if you were somewhere else instead of studying these slides That most desired activity that you are presently giving up is considered an opportunity cost Scarcity , Choice, and Opportunity Cost Marginal Analysis – An examination of the effects of additions to or subtractions from a current situation Production Possibilities Curve – A curve that shows the maximum combinations of two outputs that an economy can produce, given Fix resources Fully employed Technology unchanged Corn Corn Beans 10000 8000 1000 6000 2000 4000 3000 5000 10,000 Must give up 2000 Corn for 1000 Beans Must give up 500 Beans for 1000 Corn 8,000 Scarcity limits an economy to points on or below its production possibilities curve Two Corn for 1Bean or ½ Bean for One Corn 100 acres Fully employed (Efficient) One tractor 1,000 5,000 Soybeans Law of Increasing Opportunity Costs – the opportunity cost increases as production of one output expands Corn Increase in Land Technology improvement in both crops Opportunity Costs 10,000 Corn for Beans Beans for Corn 0.5 2 1 3 0.33 3.5 0.29 Efficient Soybeans Corn Beans 10000 9500 1000 8500 2000 6500 3000 3500 4000 5000 Unattainable Inefficient Corn 3500 Corn for 1000 Bean Technology improvement in corn 3,500 Soybeans Corn 4,000 5,000 Soybeans Technology improvement in corn and be used to increase soybean production Investment – The accumulation of capital, such as factories, machines, and inventories, that is used to produce goods and services Opportunity Cost of Investment – The consumer goods that could have been purchased with the money spent for plants and other capital An increase in investments make possible create future economic growth and more goods and services A nation can accelerate growth by increasing production of capital goods in excess of the capital being worn out. Capital Capital Consumption Consumption Corn Production 1950s (Hybrid seed) 1960s (Modern Fertilizer) 1970s (Round-up / No till) Current (Genetics) 1990-1947 27.07 1948-1960 44.35 1961-1977 78.62 1978-1991 106.90 1992-2009 137.78 Other Examples Computer age Fiber - Optics Robotics Copyright eStudy.us 2010 michael.roberson@eStudy.us