The last three course objectives from text page 35 are:
4. Explain the conditions in which resources are
used efficiently.
5. Explain how economic growth expands production
possibilities.
6. Explain how specialization and trade expand
production possibilities.
3. Outline
C. Using Resources Efficiently
Marginal cost (MC) is the opportunity cost of producing
one more unit of output.
1. Marginal cost rises because the opportunity cost
of a product rises as more of a product is produced.
2. The marginal cost curve is upward sloping in Figure 3.4 in your text, page 42, and is derived from Figure 3.2A and
Figure 3.2B text page 40.
Marginal benefit (MB) of a good is the maximum that
someone is willing to pay for one more unit of it.
1. The principle of decreasing marginal benefit
holds that as more of a product is produced, its marginal benefit decreases.
2. The marginal benefit curve is downward sloping,
as shown by the MB curve in Figure 3.4 in your text, page 42.
Resources are used efficiently when they are producing
the goods and services valued most highly.
1. Efficiency is attained when the quantity of the
good produced set the marginal benefit equal to the marginal cost.
2. In Figure 3.4 in
your text, page 42, the efficient quantity of tapes is 2.5
million per month.
D. Gains From Trade
The abilities of each person, business, state, or nation
differ. As a result, they have different opportunity costs of producing a particular
good.
Can you produce a good or service at a lower opportunity
cost than anyone else? If so, that is your comparative advantage. If
there is a market demand for that good or service, you are well advised to
specialize in that occupation.
Both you and the world will be richer if you heed the
advice above. Both you and the world around you will be poorer if you do not.
In terms of a production possibility frontier, at the
point of production the person, business, state, or nation whose PPF is less steep
relative to the good or service being produced has the comparative advantage.
Look at Nancy's PPF as extracted from Figure 3.8, page 46 in your text.
Nancy's PPF shows attainable combinations of tapes and cases, using all resources
available to her.
Relative to cases (measured along the vertical axis),
Nancy's PPF is less steep than her competitor Tom. Tom's PPF , relative to cases,
has the steeper slope.
Therefore Nancy should produce cases, since her shallower
sloped PPF is an indication that she has a lower opportunity cost than Tom in doing so.
Let's consider Tom and his PPF too. Tom's PPF is shown
on page 45 in your text, and then embedded in Figure 3.8 on page 46 in your text.
Look at Tom's PPF as extracted from Figure 3.8, page 46 in your text. Tom's
PPF shows attainable combinations of tapes and cases, using all resources available to
him.
Relative to tapes (measured along the horizontal axis),
Tom's PPF is less steep than his competitor Nancy. Nancy's PPF , relative to tapes,
has the steeper slope.
Therefore Tom should produce tapes, since his shallower
sloped PPF is an indication that he has a lower opportunity cost than Nancy in doing so.
E. The Market Economy
Property rights are social arrangements that
determine ownership, use, and disposal of resources, and of goods and services.
Without property rights, it is difficult for specialization and exchange to develop.
The term property can refer to anything of value, not just real estate.
A market is any setup that allows buyers and sellers to
trade with each other. In markets, price sends signals to both buyers and sellers
about the relative scarcity of an item.
A circular flow diagram shows that households are buyers
in the goods and services market and sellers of the four resources in the resource
markets.
A circular flow diagram shows that businesses are buyers
in the resource markets and sellers in the goods and services market.
The physical flows of goods and services and resources is
the result of the mutual acceptance of the monetary flows.
Land earns rent;
labor is paid wages;
capital earns interest;
entrepreneurs are paid profit.
The annual national dollar value of the physical flow of
finished goods and services is equal to the income earned by the four kinds of resources.
5. Optional
Activity - The French Wheat and German Steel Problem
Your instructor may present a model that demonstrates the
potential for two nations to produce and to consume beyond their respective production
possibility frontiers.
This would be a good time to check out some features such
as:
Point Counter Point)
Chapter Quiz with text and study guide reference pages for
each answer you give incorrectly
Links to information about famous Keynesian and Classical
Economists
7.
Optional Activity - Watch Economics U$A Video #2 Markets and
Prices in the PHCC library.
8. Homework
1. Review Helpful Hints in your study guide.
2. Complete the even-numbered Questions in your study
guide pages 28 - 34 and check your answers on study guide
pages 35 - 42.
3. If you watched the video, write one or more sentence about each of its three
episodes which will bring the episodes and lessons learned from them to mind.
4. If not done in class, complete the Two-Minute-Feedback.
9.
Summary
A person, business, state, or nation has a
comparative advantage in producing a good if that person can produce the good at a lower
opportunity cost than everyone else can.
A person, business state, or nation can
gain by specializing in the activity in which they have a comparative advantage and
trading with others.
You can learn-by-doing.
Property rights and markets enable people
to gain from specialization and trade.
Markets coordinate decisions and help to
allocate the four resources to their higher valued uses.
10.
Preview
The chapter on Demand and Supply is one of
the key chapters because:
it shows how price and quantity are
arrived at by markets;
it is linked directly to subsequent
chapters;
it is an important graphic model whose
principles occur repeatedly throughout the remainder of the book.
11.
Two Minute Feedback
Take a minute and jot down the problem, idea, or concept that
was most interesting to you from this chapter.
Take another minute and jot down the problem, idea, or concept
with which you struggled the most.
