econ 101

econ 101

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

 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

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
 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...

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