Chapter 1.3 notes

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Chapter 1.3 notes
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Trade-Offs and Opportunity Cost

• Trade-offs alternative choices people face in
  making an economic decision.
• Opportunity cost the cost of the next best
  alternative among a persons choices. The money,
  time, or resources a person gives up, or
  sacrifices, to make his final choice.

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Production Possibilities

• production possibilities frontier diagram
  illustrates opportunity cost. It shows the
  combinations of goods and/or services that can be
  produced when all productive resources are used.
• Identifying alternatives allows an economy to
  examine how it can best put its limited resources
  into production.

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• PPF allows an economy to analyze the combination
  of goods and services that makes maximum output
• Economic growth caused by more resources, larger
  labor force or increased productivity causes a
  new frontier for the economy.

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How could the PPF expand as shown?
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Thinking like an Economist

• Building simple models helps economists analyze
  or describe actual situations
• Cost-benefit analysis compares the costs of an
  action to the benefits received.
• Small incremental steps helps economists test
  whether the estimated cost was correct.

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Macroeconomics

• Is the study of the behavior of the economy as a
  whole and involves topics like inflation,
  unemployment, aggregate demand, aggregate supply.

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Microeconomics

• Is the study of the behavior of individual
  players in an economy - individuals, families,
  and businesses
• Includes prices, costs, profits, competition and
  the behavior of the consumers and producers.