Marginal Analysis  Comparing benefits and costs.  Marginal – means “extra, additional, one more”  Marginal Cost (MC) – What does it cost to go to the.

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Presentation transcript:

Marginal Analysis  Comparing benefits and costs.  Marginal – means “extra, additional, one more”  Marginal Cost (MC) – What does it cost to go to the next level or to get one more item?  Marginal Benefit (MB) – What pleasure or “utility” do you get out of the next level or item?  Incentive ◦ Why do we act? ◦ We do it when MB is greater than or equal to MC.

HoursEcon ScoreMath Score

PRODUCTION POSSIBILITIES Assumes... Full Employment Full Production Fixed Resources Fixed Technology Two Goods for example...

PRODUCTION POSSIBILITIES Assumes... Full Employment and Productive Efficiency Fixed Resources Fixed Technology Two Goods for example... PIZZA A Consumer Good

Two Goods Fixed Resources Fixed Technology Assumes... Full Employment and Productive Efficiency PRODUCTION POSSIBILITIES for example... Robots A Capital Good

Using all of our resources, to get some pizza, we must give up some robots! for example... What if we could only produce... 10,000 Robots or 400,000 Pizzas PRODUCTION POSSIBILITIES

PIZZA (in hundred thousands) ROBOTS (in thousands) in table form PRODUCTION POSSIBILITIES

PIZZA (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

PIZZA (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

PIZZA (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

PIZZA (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

PIZZA (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

PIZZA (in hundred thousands) ROBOTS (in thousands) in table form graphical form Robots (thousands) Pizzas (hundred thousands) PRODUCTION POSSIBILITIES

Q Q Robots (thousands) Pizzas (hundred thousands) A B C D E W Attainable but Inefficient Unattainabl e Attainable & Efficient PRODUCTION POSSIBILITIES

An economy must sacrifice some of product X to obtain more of product Y. PRODUCTION POSSIBILITIES Limited Resources means a limited output...

 Economic resources are not completely adaptable to other uses  To make more of X it costs more and more of Y  This makes the PPC: ◦ Bowed out from the origin ◦ Concave

Q Q Robots (thousands) Pizzas (hundred thousands) U Unemployment & Underemployment Shown by Point U More of either or both is possible PRODUCTION POSSIBILITIES

Q Q Robots (thousands) Pizzas (hundred thousands) U Unemployment & Underemployment Shown by Point U More of either or both is possible PRODUCTION POSSIBILITIES Notes... Economic Growth 1.Increase in resource supplies 2.Better resource quality 3.Technological advances 4.Capital Goods

Economic Growth Q Q Robots (thousands) Pizzas (hundred thousands) A’ B’ C’ D’ E’ PRODUCTION POSSIBILITIES