1. Unit 1: Basic Economic Concepts

2. The Economizing Problem…
WE HAVE A PROBLEM!
The Economizing Problem…
Scarcity

5. Create a list of three things you would rather
be doing instead of attending college

6. *The value of the next best alternative foregone.*
Opportunity Cost
*The value of the next best alternative foregone.*

9. What is the Production Possibilities Curve?
Graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency.
4 Key Assumptions
Only two goods can be produced
Full employment of resources
Fixed Resources
Fixed Technology

10. The Production Possibilities Curve (or Frontier)

11. The Production Possibilities Curve (PPC/PPF)

12. Production Possibilities
How does the PPC graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency? 14 12 10 8 6 4 2
Impossible/Unattainable
(given current resources) A B G C
Bikes
Efficient D
Inefficient/ Unemployment E
Computers

13. Opportunity Cost Example:
1. The opportunity cost of moving from a to b is…
2 Bikes
2. The opportunity cost of moving from b to d is…
7 Bikes
3. The opportunity cost of moving from d to b is…
4 Computer
4. The opportunity cost of moving from f to c is…
0 Computers
5. What observations can you make about point G?
Unattainable

14. Production Possibilities
A B C D E
PIZZA
ROBOTS
List the Opportunity Cost of moving from a-b, b-c, c-d, and d-e.
* Law of Increasing Opportunity Cost
As you produce more of any good, the opportunity cost will increase.
Why? Resources are NOT easily adaptable to producing both goods.

15. Constant vs. Increasing Opportunity Cost
Straight or bowed out?
Corn
Cactus
Wheat
Pineapples

16. Shifting the Production Possibilities Curve

17. Production Possibilities What if there is a change?
Shifters of the PPC
Change in resource quantity or quality
2. Change in Technology

18. Production Possibilities
What happens if there is an increase in population?
Robots
Pizzas

19. Production Possibilities
What happens if there is an increase in population?
Robots
Pizzas

20. Production Possibilities
What if there is a technology improvement in pizza ovens?
Robots
Pizzas

21. Production Possibilities
What if there is a technology improvement in pizza ovens?
Robots
Pizzas

22. Capital Goods and Future Growth
Countries that produce more capital goods will have more growth in the future.
Panama – Favors Consumer Goods
Mexico – Favors Capital Goods
Current
PPC
Future
PPC
Future
PPC
Capital Goods
Current
PPC
Capital Goods
Consumer goods
Consumer goods
Panama
Mexico

23. PPC Practice Draw a PPC showing changes for each of the following:
Pizza and Robots (3)
1. New robot making technology
2. Decrease in the demand for pizza
3. Mad cow disease kills 85% of cows
Consumer goods and Capital Goods (4)
4. BP Oil Spill in the Gulf
5. Faster computer hardware
6. Many workers unemployed
7. Significant increases in education

24. New robot making technology
Question #1
New robot making technology Q
A shift only for Robots
Robots Q
Pizzas

25. Question #2 Decrease in the demand for pizza Q
The curve doesn’t shift!
A change in demand doesn’t shift the curve
Robots Q
Pizzas

26. Mad cow disease kills 85% of cows A shift inward only for Pizza
Question #3
Mad cow disease kills 85% of cows Q
A shift inward only for Pizza
Robots Q
Pizzas

27. Question #4 BP Oil Spill in the Gulf Q
Decrease in resources decrease production possibilities for both
Capital Goods (Guns) Q
Consumer Goods (Butter)

28. Question #5 Faster computer hardware Q
Quality of a resource improves shifting the curve outward
Capital Goods (Guns) Q
Consumer Goods (Butter)

29. Question #6 Many workers unemployed Q The curve doesn’t shift!
Unemployment is just a point inside the curve
Capital Goods (Guns) Q
Consumer Goods (Butter)

30. Question #7 Significant increases in education Q
The quality of labor is improved. Curve shifts outward.
Capital Goods (Guns) Q
Consumer Goods (Butter)

31. 1. Which of the following are assumptions underlying the PPC. a
1. Which of the following are assumptions underlying the PPC? a. Only two goods are produced b. Technology, population, and capital are variable. c. Prices determine the position on the PPC. d. All the above.
2. Efficiency along the PPC implies, a. Goods are produced quickly b. The state of technology is maximized c. In order to get more of a good, some of another must be given up d. Goods are distributed equitably
3. Which of the following would not shift an economy's PPC? a. An increase in population b. Doubling the amount of capital in the economy c. An increase in the money supply d. A technological advance

32. 4. What determines the opportunity cost along a PPC. a
4. What determines the opportunity cost along a PPC? a. The kinds of goods being produced b. The slope of the PPC c. Choices made by the economy d. The area under the PPC
5. An economy has a constant cost PPC. What do you know about the slope? a. A straight line b. Bowed in c. Bowed out d. Convex to origin
6. What statement below implies that a PPC will be an increasing cost curve? a. Resources are scarce b. Most resources are more productive in certain uses than others c. Underemployment of productive resources d. Diminishing marginal returns to scale
7. A PPC shows a. The best combination of goods to produce b. The plans for increasing output in the short run c. What can be produced with various combinations of resources d. Resources are constrained by choices