Have you any questions on the previous lesson, homework, or materials listed on
the previous daily class outline?
2.
Course Objectives
The first three course objectives from your text page 35
are:
1. Explain the fundamental economic problem.
2. Define the production possibility frontier.
3. Define and calculate opportunity cost.
3.
Outline
I. Resources and Wants
A. Scarcity, that the resources available are
insufficient to satisfy people’s wants, is universal.
B. Economics can be defined as the study of the choices
people make to cope with scarcity.
C. Resources can be divided into four categories:
1. Labor, the time and effort devoted to producing goods
and services.
2. Land, the gifts of nature used to produce goods and
services.
3. Capital, goods we have produced that are now used to
produce other goods and services. Human capital is the knowledge and skill people
possess from on-the-job training and education.
4. Entrepreneurship, the resource that organizes labor,
land, and capital.
D. Wants are unlimited.
II. Resources, Production Possibilities, and
Opportunity Cost
A. The production possibility frontier (PPF )
marks the boundary between combinations of goods and services that can be produced and
combinations that cannot.
B. A production possibility diagram that holds constant the
production of all goods, save for sodas and tapes, is illustrated in Figure 3.1.
1. The production possibility frontier line separates
attainable combinations of production (all points inside and on the line) from
unattainable combinations (all points beyond the line).
C. Production efficiency means that more of one good
cannot be produced without decreasing production- of another good.
1. Production efficiency occurs only when production takes
place on the frontier line. Because another good must be given up, there is a tradeoff.
D. The opportunitycost of an action is the
highest valued alternative forgone.
1. On the production possibility frontier, the opportunity cost
of producing more of one product (for example, a bottle of soda) is the output of the
other good that must be foregone (for example, the tapes).
2. The opportunity cost of a bottle of soda is the number of
tapes that must be foregone per bottle of soda; hence opportunity cost is a ratio.
3. The opportunity cost of a tape is the inverse of the
opportunity cost of a soda.
E. Different resources are not equally effective in producing
different goods. Thus along the production possibility frontier, producing more of a good
has increasing opportunity costs.
1. The convex (bowed-out) shape of the production possibility
frontier reflects increasing opportunity costs.
2. Most activities in the real world are subject to increasing
opportunity costs.
From the previous outline, take the following quiz:
A. Resources, Production Possibilities, and
Opportunity Cost
1. List the four kinds of resources.
A.
B.
C.
D.
2. Be able to graph a PPF and to recognize the
attainable and unattainable.
3. Be able to measure opportunity cost as
choices are made to move along a PPF.
B. Using Resources Efficiently
In changing the mix of output, resources
________
(are, are not) used efficiently if increased production of one good involves
sacrificing units of some other good.
C. Economic Growth
1. Economic growth shifts the PPC _________
(inward, outward).
2. True False
Growth is the result of technological change and of capital accumulation.
Insert your CD-rom in your computer. Start Economics in Action.
Complete the portion of your Economics
in Action CD called The Economic
Problem, specifically, the portions that refer to Production Possibilities, Efficient Resource Use, and Economic Growth.
6. Discussion Questions and Problems (study guide pages 28-34)
The important true or false (TF), multiple
choice (MC), problems (P), and Teacher issues (T) are:
T/F: 1,
4, 6, 7, 8, 12, 13,
MC: 1,
3, 4, 5, 6, 8, 16, 18, 19
P: 3, 4, 5
T: 1
7. Homework
1. Review Key Concepts pages 25 in your study guide.
2. Complete the odd-numbered Questions from your study
guide pages 28-34 and check your answers on pages 35-41.
3. Compare your class notes and your understanding of the homework Questions with
your study partner.
4. Become comfortable with using your Economics in Action tutorial portion called The Economic Problem.
8. Summary
1. Scarcity occurs because resources are insufficient
relative to human wants.
2. Resources are classified as land, labor, capital, and
entrepreneurship.
3. Production possibilities are limited by resources
available. The PPF is the boundary between attainable and unattainable and shows
efficient, fully used resource use.
4. Resources are used efficiently only if more of one good
requires sacrifice of some amount of another good.
5. The opportunity cost of a choice is the highest value
alternative forgone.
6. Economics studies the choices people make to cope with
scarcity.
