1. 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)
27.07
44.35
78.62
106.90
137.78
Other Examples
Computer age
Fiber - Optics
Robotics
Copyright eStudy.us 2010