Scarcity, Opportunity Cost, and the PPC AP Micro Stater

But first… A quick look at graphing

Direct (positive) relationship Two variables change in the same direction When graphed, the line slopes upward Positive slope

Inverse (negative) relationship Two variables change in opposite directions When graphed, the line slopes downward Negative slope

Examples If the price of tickets increases for the next chamber music recital, will more or fewer students attend? If you work a longer shift at Tinseltown, will you drink more or less coffee?

Review of slope Slope = (change in Y) / (change in X) Triangle means “change in” Straight line = constant slope Curved line = varying slope

Unlimited wants While individuals can be satisfied for a time (after eating that cheeseburger)… …the collective wants (and needs) of all members of society are UNLIMITED!

Scarce resources The resources available for production of goods & services are LIMITED The factors of production include: Land Capital (not $) Labor Entrepreneurial Ability

Production Possibilities Table Let’s assume… Production Possibilities Table Time: One Hour You are a hunter gatherer, and your skills include hunting rabbits and picking berries. You have to choose how to split up your time on these two tasks. Rabbits Berries 300 1 280 2 240 3 180 4 100 5

Calculating Opportunity Cost OC = What is sacrificed Measures the amount of a good that has to be sacrificed to gain more of the other good Rabbits Berries OC (marginal) 300 --- 1 280 20 2 240 40 3 180 60 4 100 80 5

Production Possibilities Curve (a. k. a Production Possibilities Curve (a.k.a. Production Possibilities Frontier) Moving from one point to the next on the curve demonstrates opportunity cost. Some amount of one thing must be sacrificed to gain some amount of the other thing. It works in both directions. Even using all available resources, we can’t have more of both things, so we make a CHOICE.

Calculating Per-Unit Opportunity Cost Formula: Opportunity cost of one more of good A = good B / good A In other words, per-unit opportunity cost is what you’ve lost divided by what you’ve gained

Law of Increasing Opportunity Costs As you continue to gain one more of one good, the amount you sacrifice of the second good grows greater This is because some resources are better at producing one good than another When resources are forced to work in an industry or on a task where they are not proficient, they are less productive (see p.27)

How to analyze the PPC Point on the curve (productive efficiency): Efficient economy All resources are fully utilized Point inside (below) the curve: Not using all resources or using them inefficiently Point outside (above) the curve: Unattainable, for now

The curve CAN shift entirely https://www. youtube. com/watch Shift up/outward from economic growth: New or better resources Education Population growth Better tech Capital investment Shift down/inward from loss of resources: War Disease Natural disaster