Economics chapter 2 notes
Economics chapter 2 notes Eco 280
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This 3 page Class Notes was uploaded by Haley Morse on Wednesday September 7, 2016. The Class Notes belongs to Eco 280 at Northern Arizona University taught by Andrew Parkes in Fall 2016. Since its upload, it has received 39 views. For similar materials see Introduction to Economics in Economics at Northern Arizona University.
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Date Created: 09/07/16
Sept. 7 Chapter 2: Production possibilities, opportunity cost, and economic growth Having learned that scarcity flows forces choices, here you will study choices, people make in more detail The 3 fundamental economic questions: 1. What to produce? 2. How to produce? 3. For whom to produce? 2 key concepts in this chapter: 1. Opportunity cost (Cost) 2. Marginal analysis Opportunity Cost: The next best opportunity sacrificed for a chosen alternative Ex: what did I give up to be here right now Implicit (Opportunity) costs: Sleep, happy hour, eating Explicit (Opportunity) costs: Fees, tuition, not working and getting paid Marginal analysis: An examination of effects of additions to or subtractions from a current situation If I add a little more how much does doing so add or subtract (Want additional benefit to be greater than the cost) Ex: benefit of studying exceeds time slept What is a production possibilities curve (Or frontier)? Curve showing maximum combinations 2 outputs the economy can produce given its available resources and technology Technology: the body of knowledge and skills applied to things produced Assumptions underlie production possibilities model 1. Fixed resources 2. Fully employed resources 3. Technology unchanged (Pg. 33) What is the conclusion of the production possibility curve: Scarcity limits an economy to points on or bellow its production possibilities curve What are efficient points? Points along the curve are max. output levels with given resources and technology What happens if we move between 2 efficient points? More of 1 product means less of the other is produced Capital goods= manufactured goods Outside the curve=unattainable without new technology, huge economic growth, immigrants, etc. Inside the curve: attainable but inefficient What is the law of increasing opportunity costs* (Reason why curve is Bowed out)**** Test Q Principles that the opportunity cost increasing as production of one output expands (See figure on pg. 36 in textbook) What is economic growth? The ability of an economy to produce greater levels of output, represented by an outward shift of its production possibilities curve What makes economic growth possible? Increase in resources (More uranium, oil, etc.) Technological change (New way of making products) Immigration Shifts in curve don’t have to be equal to both things being produced What happens when a country does not invest in new technology? Everything else being equal, the country will not grow Ceteris Paribus (CP): Others things remain the same What is investment? An accumulation of capital, such as factories, machines, & equipment used to produce goods and services What is the opportunity cost of an investment? A country must decide how to allocate its resources between producing capital goods (Manufactured) and consumer goods (Agricultural) What does producing capital exceeding the amount required to replenish its depreciated capital? Economic growth and a higher standard of living-goods lose value over time What conclusion can we make about investments? A nation can accelerate growth by increasing production of capital goods in excess of the capital being worn out