Microeconomics ECO 2023
Week 1 – Day 2 Lecture Notes
Production Possibilities Frontier (PPF) / Production Possibilities Curve (PPC) -Helps illustrate the “What?” and “How?” questions. It pertains to the entire economy. -Shows the maximum combinations of goods and services that can be produced. -Shows the limits to what you can produce.
Limits to Production / Factors of Production
③ Labor: physical or mental efforts of human beings
③ Capital: all man-made goods
o Not money
o The actual, physical good itself
o Can be used to produce other goods and services
o EX: machines, tools, buildings, trucks, factories, roads, etc.
③ Land: all natural resources (both on and under the surface)
o EX: Soil, rivers, water, forests, mountains, climate, air, sun, etc.
o Human resource that manages other resources
o Acts as a boss and decides how a business will be run Don't forget about the age old question of In what ways were native ideas brought about and institutions of society, religion, and politics
similar or different to european nations?
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③ Resources we are not utilizing
③ Misallocated resources
o Workers that are bad at making gumballs and better at making machines, if we make them make gumballs, then that is misallocation. Don't forget about the age old question of What are the four components of kairos?
GPA 4 If you want to learn more check out How would intuition and common sense play a role in research?
Above the Curve: Not Attainable
On Curve: Attainable /
Below Curve: Attainable /
Not Production Efficient
1 12 24
GPA = Dates Dates = GPA
*Assume each date is one-hour long.
Not Attainable: Anything above the curve is not attainable because you do not have enough resources to produce at a level above the curve.
EX: In the dates and GPA example, the maximum GPA you can have is a 4.0 and the maximum dates you can have is 24 because each date is 1 hour and there are only 24 hours in a day. Attainable/Not Production Efficient: Anything below the curve is attainable but it is not efficient. It is attainable because you have enough resources to produce at that level because it is using less than the maximum resources available. But because you are not making use of all the resources available, you are not being efficient. If you want to learn more check out What is the synergetic model?
Attainable/Production Efficient: Anything on the curve is attainable because you are using all of your resources and not more resources than you have available. Producing on the curve is also efficient because you are making use of the absolute maximum amount of resources that you have.
1 2 3 4
Opportunity Cost: The opportunity cost of an action is the next best alternative forgone. ξ EX: I could go get: sushi, pizza, or a taco. Each is $5 and I only have $5 to spend so I can only get one. If I get a taco, then the opportunity cost is the pizza, if I place the pizza as the next best thing after getting a taco. The opportunity cost could either be pizza or sushi, but because I could only get one other thing for $5, I would have to place either pizza or sushi higher and that would be the opportunity cost. ξ In the real world, almost every action and thing that you do has an opportunity cost.
???? You can move along the PPC, but there will be an opportunity costs because of that. It’s a tradeoff.
o Moving along the curve means that you would be utilizing all of you resources available (thus being efficient), so you must trade some resources in exchange because you cannot produce more than what you are able to produce with all of your given resources.
Opportunity Cost = Loss
o Loss: determined by what you have to give up making in order to make something else o Gain: determined by what you made in exchange for what you had to give up
In the example above, the opportunity cost from:
ξ Point A to point B = 1 Chocolate Bar = 1 chocolate bar/gumball
ξ Point B to point C = 2 Chocolate Bars = 2 chocolate bars/gumball
ξ Point C to point D = 3 Chocolate Bars = 3 chocolate bars/gumball
ξ Point D to point E = 4 Chocolate Bars = 4 chocolate bars/gumball
Finding the opportunity cost going the other way is just the reciprocal:
ξ Point E to point D = 1 Gumball = ¼ gumball/chocolate bar 4 Chocolate Bars
ξ Point D to point C = 1 Gumball = 1/3 gumball/chocolate bar 3 Chocolate Bars
ξ Point C to point B = 1 Gumball = ½ gumball/chocolate bar 2 Chocolate Bars
ξ Point B to point A = 1 Gumball = 1 gumball/chocolate bar 1 Chocolate Bar