Transcript Economics - David Crockett High School

Economics
Ch 1, Sec. 2 –
Opportunity Cost
Trade-off
• An alternative that we sacrifice when we
make a decision
Guns or butter
• A phrase that refers to
the trade-offs that
nations face when
choosing whether to
produce more or less
military or consumer
goods
Opportunity cost
• The most desirable alternative given up as
the result of a decision
Thinking at the margin
• Deciding whether to do or use one
additional unit of some resource
Why must the opportunity cost
of a decision always be
something desirable?
• An opportunity cost must be desirable
because there would be no meaningful
decision to be made between a desirable
option and an undesirable.
What is involved in a “guns or
butter” decision?
• “Guns or butter” refers to whether a
country chooses to produce more military
goods (“guns”) or more consumers goods
(“butter”).
What does it mean to “think at the
margin”?
• “Thinking at the margin” means making a
decision about how much more or less to
do. It allows people to evaluate options
based on available resources.
Economics, Ch 1, Sec 3
Production Possibilities
Curves
Production possibilities curve
• A graph that shows alternative ways to use
an economy’s resources
Production possibilities frontier
• The line on a production possibilities graph
that shows the maximum possible output
Underutilization
• Using fewer resources than an economy is
capable of using
Cost
• To an economist, the alternative that is
given up because of a decision
Efficiency
• Using resources in such a way as to
maximize the production of goods and
services
Law of increasing costs
• Law that states that as we shift factors of
production from making one good or
service to another, the cost of producing
the second item increases
How is underutilization
depicted on a production
possibilities frontier?
• Underutilization
is shown by any
point that
appears inside
the production
possibilities
frontier
How does a production
possibilities curve illustrate
the efficiency of an economy?
• A production possibilities curve shows
the maximum possible output along
the production possibilities frontier. If
a country’s economic production is on
the frontier, the economy is producing
at top efficiency
How does a production
possibilities curve illustrate
opportunity cost?
• Opportunity cost can be illustrated by
comparing the data at various points
on the production possibilities frontier.
As production of one element
increases, the curve shows the
decrease in production of the other
element: opportunity cost.
Illustrate the impact of a drought
on a production possibilities
curve for farm goods.
Illustrate the impact of the
invention of new technology on
a production possibilities curve
for factory goods.