1. Economic Productivity, Choices and Decision Making

2. Circular-Flow Model 4 elements Households Product markets Firms
Stores, where you purchase goods
Firms
Companies that make products
Resource markets
Suppliers of resources

3. Productivity & Economic Growth
Productivity (measure of output produced by input over times) #1 factor for econ growth
Applies to all FoP
Div of labor aims to make workers more proficient
When FoP do job more efficiently then others they specialize
Gov’t and businesses benefit when they invest in human capital

4. Tradeoff and Opportunity Cost
There are alternative choices (trade-offs) in every econ choice.
Using a decision making grid helps analyze econ trade-offs & options
The cost of next best alternative choice is the opportunity cost
Can be measured in time, resources or $$$
Helps us to recognize & evaluate cost of alts & making choices from alts

5. Opportunity cost
Two types of costs can be factored into opportunity cost:
Explicit costs- require a money system (measured in $)
Implicit costs- does not require a money system (time, relationships)

6. Practice
Bobby is going to buy a new car? He has been looking at two in particular. The first is a $ Ford Mustang.
It is a fast car with “cool” styling. It gets about 18 miles to the gallon and the wheels are rather expensive to replace.
The second car is an $ Toyota Prius. It has odd styling and is not as fast as the mustang. It does however get 60 miles to the gallon and its tires are affordable.
1. What would the opportunity cost be if Bobby chooses to buy the Mustang?

7. Production Possibility Frontier
Graph showing an econ production capabilities
Illustrates how much an economy can produce with avail resources
Only looks at two goods or services over a given window of time
Represents max. output w/ resources fully used
It only looks at a given window of time

8. PPF Visual

9. The Production Possibilities for a Single Country
Option
Food
Computers A 11 5 B 8 9 C 10 D 12

10. When is the PPF not a straight line?
The PPF shows the possible combinations of goods that can be produced when resources are used efficiently
When is the PPF not a straight line?
Law of Increasing Opportunity Cost
Each additional increment of one good requires the economy to give up successively larger increments of another good

11. Thinking Like an Economist
Econ models used to give simplified theories & pictures
Models based on assumptions, quality only as good as assumptions
Models can be changed based on data

12. The Road Ahead
In a free enterprise economy consumers & private business determine WHAT, HOW, WHY
Economic topics have a baring on standard of living (inflation, unemployment….)