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Economics Intro
Economics Intro
uk
Introduction to
Economics
The Economic Problem
Opportunity Cost
Production Possibility
Frontiers
Opportunity Cost
• Definition – the cost expressed in terms
of the next best alternative sacrificed
• Helps us view the true cost of decision
making
• Implies valuing different choices
Production Possibility
Capital Goods
Frontiers IfAssumeIf it devotes all
the country is
a country
Ifresources to its
it reallocates capital
atcan
goods
produce
point
resources A ontwo
it (moving
could the
round
Ym types
PPF
the PPF
produce of
Itfrom
canagoods
A to B) it can
maximum
with
of Ym.its
produce
produce moreresources
consumer
the
goods but only
– capital at the
goods
combination
If it devotes
expense of
its Yo
allcapital
of fewer
A and
goods. consumer
Thegoods
opportunity
Yo capital
resources
goods
to and
cost of producing
consumer goods anitextra
Xo
Xo – consumer
X1 consumer goods
could produce a
goods capital goods.
is Yo – Y1
maximum of Xm
Y1 B
Xo X1 Xm Consumer Goods
Production Possibility
Frontiers
Capital Goods
Production
It can only produce at
points outside the PPF
inside the PPF
if it finds a way of
– e.g. point
expanding its B
means or
resources theimproves
Y1
C the productivity
country of
is not
those resources it
usinghas.all This
its will
A already
.
Yo resources
push the PPF further
outwards.
Xo X1 Consumer Goods