LITTLE NOTABLES EXCLUSIVE – WESLEY HARFIELD
Opportunity cost
The best alternative forgone when we make a choice
OPC arises because time and resources are scare
OPC can be measured in terms of dollars and time
Production possibility frontier
Graph illustrating the attainable choices to a firm or economy assuming a given level of
resources and state of technology
Illustrates concepts of scarcity, choice and OPC
Provides shorthand method of illustrating economic problem: what to produce, how to
produce and for whom to produce
Shows the limit of resources available in an economy at a given point in time
Shows the level of technology available in an economy at a given point in time
Shape of PPF
As production expands OPC of producing extra units increases
Principal of increasing cost
Resources are specialised or specific
Difficult or impossible to transfer from one user to another
To push PPF out
Discover new resources
Improved technology
Marginalism
In weighing the costs and benefits of a decision it’s important to weigh only costs and
benefits that arise from the decision
Marginal benefit > marginal cost to make the choice
When deciding whether to produce additional output a firm considers only additional costs
not any costs
LITTLE NOTABLES EXCLUSIVE – WESLEY HARFIELD
Sunk costs
Costs that cannot be avoided regardless of what is done in the future because they have
already been incurred
They are the expenditures which we have already committed
Efficient markets
One which profit opportunities are eliminated almost instantaneously
Market
Group of buyers and sellers of a particular g/s
Law of diminishing marginal utility
Only produce up until marginal utility = price
Law of demand
There is an inverse relationship between price and quantity demanded
As price increases quantity demanded decreases
Market demand
The sum of all individual demands for a g/s
Individual demand...