Unit One: Product Possibilities Curve

Product Possibilities Curve

Moments of the PPG:

1. Inside of the curve:
1. Underemployment
2. Famine
3. War
4. Natural disasters
5. Unemployment
6. Recession

2. Along the curve:
1. Producing less of one product and more of another

3. Shifts of the curve:
1. Technology
2. Economic growth
3. Add resources

Unit One: Scarcity, Choice, and Opportunity Cost

Scarcity 

•  the limited nature of society's resources causes an inability to satisfy all our wants

• The fundamental economic problem that all societies face
• Permanent 

Choice

Incentives - a reward that encourages or a penalty that discourages an action

Trade off - an exchange, giving up one thing to get another

• If we want more of one thing, we must trade something else in exchange for it

Opportunity Cost

• the highest-valued alternative that we give up to get something

Law of increasing opportunity cost – as you produce more of one good, the opportunity cost (the foregone production of another good) will increase

                                                   

       Constant PPG (same)

 Concave (bowed out)

Productive efficiency vs Allocative Efficiency

Productive efficiency – this is where products are being produced in the least costly way

• Producing like we should, on the curve

Allocative Efficiency – the products that are being produced are the ones that are desired by the economy

Unit One: Basic Economic Concepts

Economics: 

• The study of how people allocate their limited resources to satisfy their nearly unlimited wants

Wants – the desires of the citizens

• Always going to be broader than your needs 

Needs – basic requirements for survival


Shortage – occurs when the quantity demanded is greater than the quantity supplied

• Always temporary, cause prices to increase 

Surplus – occurs when the quantity supplied is greater than the quantity demanded

• Cause prices to decrease 

Goods:

• Consumer goods – goods that are intended for final use
• Example: A hamburger at Whataburger.

• Capital goods – items used in the creation of other goods
• Example: Steel, tires, etc. (parts to make a car)

Factors of Production:

• Entrepreneurship 
• Capital 
• Land 
• Labor 

Positive Economics – Claims that attempt to describe the world as is

• Very descriptive, all about facts 
• Example: Minimum wage laws causes unemployment. (Someone is going to be laid off somewhere)

Normative Economics – Claims that attempt to prescribe how the world should be

• Based upon opinions 
• Example: The government should raise the minimum wage.