1. Micro Chapter 2 Some Tools of the Economist

2. 6 Learning Goals 1)Define and recognize examples of opportunity costs 2)Discern why voluntary trade creates value 3)Realize why property rights are key to economic progress 4)Illustrate the concepts of tradeoffs, opportunity costs, and growth 5)Recognize that specialization and division of labor lead to higher output levels and living standards 6)List society’s three questions and specify the kinds of economic organizations (on your own)

3. Trade Creates Value

4. Two opposing views of trade: 1. When people trade, one person gains and the other person loses Referred to as a zero-sum game

5. Two opposing views of trade: 2. When people trade, both parties gain Wealth is actually created by trade

6. Transaction costs can be monetary or nonmonetary Example: surfing the web looking for airline tickets

7. The Importance of Property Rights

8. 2 Kinds of Property Rights: (1) Common rights – everybody owns it (2) Private rights – only one person owns it

9. Incentives created by private property rights: Give proper care Conserve for the future Use resources in ways other people value Mitigate possible harm to others

10. Production Possibilities Curve

11. PPC also called PP Frontier Graph:

12. The PPC can shift Shift out: growth, produce more Shift in: shrink, produce less

13. Trade, Output, and Living Standards

14. Law of Comparative Advantage Make the good for which you have a low opportunity cost and trade for the good for which you have a high opportunity cost. Translation: make something you’re good at and trade for something you’re not good at.