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Opportunity Cost, PPFs, Circular Flow

Having to make choices between items.
by

Brad Hayes

on 9 January 2017

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Transcript of Opportunity Cost, PPFs, Circular Flow

Review
Everything we do has an economic cost.
We consider the costs and benefits of each of the alternatives.
Opportunity Cost
the next best use of our resources
(time, money, etc.)
what we give up when we choose what we want.
Production Possibilities Frontier (PPF):
Illustrates
Circular Flow
Economic Model #2
the movement of wealth (money) and the factors of production between businesses and households in the factor market and the product market.
Factor/Resource Market
markets where producers sell their goods & services to consumers.
Product Market:
Economic Interdependence:
we rely on others, & others rely on us to provide the goods and services we consume.
Economic Growth
occurs when a nation’s total output of goods and services increases over time.
The curve would shift outward
Increases in Productivity:
technology
better resources
division of labor
specialization

You trust that you will be able to make more later if you sacrifice now. You are investing in your future.
Division of Labor:

work is arranged
so individual workers
do fewer tasks
than before
Specialization:


when factors of production
perform that task that
they can do relatively
more efficiently
than others.
Question Answer:
We have to make decisions because of scarcity.
How do we make decisions?
THIS IS CALLED COST-BENEFIT ANALYSIS
a diagram representing various combinations of goods and/or services as economy can produce when all productive resources are fully employed.
fully employed = being used efficiently
• economic growth
• opportunity cost
• choice
• scarcity
the market where productive resources are bought & sold
businesses hire labor with wages
buy land with rent
borrow money with interest
(consumers use the money received by selling resources to buy goods in the product market)
The amount of money, resources, and goods and services being exchanged would increase
RESULTS IN:
Additional resources being found, population growth, technology,
PRODUCTIVITY
!
the amount of output produced by a given amount of inputs in a certain period of time.
ECONOMIC GROWTH
.
TRADE OFFS
There are many trade offs with each choice we make
Any time we are faced with a choice
IS THE 1 "BEST" THING YOU GIVE UP WHEN YOU MAKE A CHOICE
Full transcript