1. Chapter 1 What is Economics About

2. Examples of Law of Increasing Opportunity Costs
Armed Services
For the Civil War those with high amounts of human capital (doctors, engineers…) were given an exemption from the draft
WWI, WWII and Korean War draft was irrelevant of job or education level.
Home Improvements
Swedish men make more improvements themselves compared to US men

3. Economic Growth Increase in resources Increase in technology
Shift of PPF outward

4. How would each of the following affect the US PPF?
A rise in the unemployment rate
The invention of the computer
An increase in the number of births in the United States
An increase in the number of births in Russia

5. Economic Growth within a PPF Framework

6. Can we draw a PPF???
A Bloody Mary contains tomato juice and two shots of vodka. A screwdriver contains orange juice and one shot of vodka. Assume we have plenty of orange juice and tomato juice, but only 1 small bottle of vodka containing 6 shots.
Draw a graph with Bloody Marys on X-axis and screwdrivers on the Y-axis. On your graph show all possible combinations of Bloody Marys and screwdrivers that could be made, given a small bottle of vodka.
How many Bloody Marys could we make if we only made Bloody Marys?
How many Screwdrivers could we make if we only made Screwdrivers?
Can we make 6 of both drinks? Why or why not?

7. Production Possibilities Frontier for Grades

8. Production Possibilities Frontier for Grades

9. More Hours of Study Shifts the Production Possibilities Frontier

10. Efficiency…Again
Produce max amount possible given resources and technology
ON PPF – EFFICIENT
UNDER PPF – INEFFICIENT
OVER PPF – NOT POSSIBLE

11. Unemployment
Economy is not producing the maximum output given the resources and technology available
Efficient?
On, over, or under PPF?

12. Efficiency Criterion
Will alternate arrangements of resources or goods make at least one person better off without hurting someone else?
Yes? Inefficient
No? Efficient

13. Efficiency, Inefficiency, and Unemployment Resources, within a PPF Framework

14. Trade or exchange Process of giving up one thing for something else
Why would you trade?
Make yourself better off
Give up something that you value less for something you value more
Example: a leather jacket is $100…what does this show??
Value the $100 less than you value the jacket

15. Periods relevant to trade
Before the trade takes place
Ex ante
Decision takes place  $2000 of other goods or the $2000 television set?
Which makes me better off?
At the point of the trade
The $2000 changing hands
After the trade
Ex post
No guarantee that trade will meet expectations
Buyers remorse

16. Benefits of Trade Compare the consumer’s and producers point of views
Consumer Surplus
Maximum buying price – price paid
Satisfaction gained by not having to pay as much
Producer Surplus
Price received – minimum selling price
Satisfaction gained by getting more than anticipated for the good

17. Which makes you better off?
Increases in Consumer or Producer Surplus?
Consumer
Why?
Price that you pay will be lower

18. Terms of Trade
Trade is where things are given up to get something else
What things?
Money, goods, services…
Terms of trade is how much is given up
Which part does buyers remorse fit into?
terms of trade
Where the money usually comes in

19. Costs of Trade Transaction costs Third-party effects
Time and effort needed to search out, negotiate, and consummate a trade
May cause trades to not take place
Don’t know about the good
Shipping costs are too high
Don’t like to work with salesperson
Third-party effects
Impacts of trade on parties not immediately involved
Second hand smoke (negative externality)