ECO 2023 MDC Economics the Seven Principles of Microeconomics Paper
Description
1-Name the seven principles of MicroeconomicsGive an example for each of them2-Graph the Circular Flow Explain it3-Graph the Production of Possibilities Frontier Explain it
2 attachmentsSlide 1 of 2attachment_1attachment_1attachment_2attachment_2.slider-slide > img { width: 100%; display: block; }
.slider-slide > img:focus { margin: auto; }
Unformatted Attachment Preview
N. GREGORY MANKIW
PRINCIPLES OF
MACROECONOMICS
Eighth Edition
CHAPTER
1
Ten Principles of
Economics
Premium PowerPoint Slides by:
V. Andreea CHIRITESCU
Eastern Illinois University
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
1
Look for the answers to these questions:
What kinds of questions does economics
address?
What are the principles of how people
make decisions?
What are the principles of how people
interact?
What are the principles of how the
economy as a whole works?
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
2
Ten Principles of Economics
Resources are scarce
Scarcity: the limited nature of societys
resources
Society has limited resources
Cannot produce all the goods and services
people wish to have
Economics
The study of how society manages its
scarce resources
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
3
Ten Principles of Economics
Economists study:
How people decide what to buy,
how much to work, save, and spend
How firms decide how much to produce,
how many workers to hire
How society decides how to divide its
resources between national defense,
consumer goods, protecting the
environment, and other needs
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
4
How People Make Decisions
Principle 1: People face trade-offs
Principle 2: The cost of something is what
you give up to get it
Principle 3: Rational people think at the
margin
Principle 4: People respond to incentives
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
5
Principle 1: People Face Trade-offs
To get something that we like, we have to
give up something else that we also like
Going to a party the night before an exam
Less time for studying
Having more money to buy stuff
Working longer hours, less time for leisure
Protecting the environment
Resources could be used to produce
consumer goods
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
6
Principle 1: People Face Trade-offs
Society faces trade-offs:
The more it spends on national defense
(guns) to protect its shores
The less it can spend on consumer goods
(butter) to raise the standard of living at home
Pollution regulations: cleaner environment
and improved health
But at the cost of reducing the incomes of the
firms owners, workers, and customers
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
7
Principle 1: People Face Trade-offs
Efficiency: society gets the most from its
scarce resources
Equality: prosperity is distributed uniformly
among societys members
Tradeoff:
To achieve greater equality, could
redistribute income from wealthy to poor
But this reduces incentive to work and
produce, shrinks the size of economic pie
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
8
Principle 2: The Cost of Something Is
What You Give Up to Get It
Making decisions:
Compare costs with benefits of
alternatives
Need to include opportunity costs
Opportunity cost
Whatever must be given up to obtain
some item
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
9
Principle 2: The Cost of Something Is
What You Give Up to Get It
The opportunity cost of:
Going to college for a year
Tuition, books, and fees
PLUS foregone wages
Going to the movies
The price of the movie ticket
PLUS the value of the time you spend in the
theater
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
10
Principle 3: Rational People Think at the
Margin
Rational people
Systematically and purposefully do the
best they can to achieve their objectives
Given the available opportunities
Make decisions by evaluating costs and
benefits of marginal changes
Small incremental adjustments to a plan of
action
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
11
Principle 3: Rational People Think at the
Margin
Examples:
Cell phone users with unlimited minutes
(the minutes are free at the margin)
Are often prone to making long/frivolous calls
Marginal benefit of the call > 0
A manager considers whether to increase
output
Compares the cost of the needed labor and
materials to the extra revenue
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
12
Principle 4: People Respond to Incentives
Incentive
Something that induces a person to act
Examples:
When gas prices rise, consumers buy
more hybrid cars and fewer gas guzzling
SUVs
When cigarette taxes increase,
teen smoking falls
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
13
Active Learning 1
Applying the principles
You are selling your 2007 Mustang. You have
already spent $1,000 on repairs. At the last
minute, the transmission dies. You can pay
$900 to have it repaired, or sell the car as is.
In each of the following scenarios, should you
have the transmission repaired? Explain.
A. Blue book value (what you could get for the
car) is $7,500 if transmission works, $6,200 if it
doesnt.
B. Blue book value is $6,300 if transmission
works, $5,500 if it doesnt.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
14
Active Learning 1
Answers
Cost of fixing the transmission = $900
A. Blue book value is $7,500 if transmission works,
$6,200 if it doesnt
Benefit of fixing transmission = $1,300
(= 7500 6200)
Get the transmission fixed
B. Blue book value is $6,300 if transmission works,
$5,500 if it doesnt
Benefit of fixing the transmission = $800
(= 6300 5500)
Do not pay $900 to fix it
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
15
How People Interact
Principle 5: Trade can make everyone
better off
Principle 6: Markets are usually a good way
to organize economic activity
Principle 7: Governments can sometimes
improve market outcomes
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
16
Principle 5: Trade Can Make Everyone
Better Off
People benefit from trade:
People can buy a greater variety of goods
and services at lower cost
Countries benefit from trade and
specialization
Get a better price abroad for goods they
produce
Buy other goods more cheaply from
abroad than could be produced at home
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
17
Principle 6: Markets Are Usually a Good
Way to Organize Economic Activity
Market
A group of buyers and sellers (need not
be in a single location)
Organize economic activity means
determining
What goods and services to produce
How much of each to produce
Who produced and consumed these
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
18
Principle 6: Markets Are Usually a Good
Way to Organize Economic Activity
A market economy allocates resources
Decentralized decisions of many firms and
households as they interact in markets
Famous insight by Adam Smith in
The Wealth of Nations (1776):
Each of these households and firms acts
as if led by an invisible hand to promote
general economic well-being
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
19
Principle 6: Markets Are Usually a Good
Way to Organize Economic Activity
Prices:
Determined: interaction of buyers and
sellers
Reflect the goods value to buyers
Reflect the cost of producing the good
Invisible hand:
Prices guide self-interested households
and firms to make decisions that maximize
societys economic well-being
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
20
Principle 7: Governments Can Sometimes
Improve Market Outcomes
Government – enforce property rights
Enforce rules and maintain institutions that
are key to a market economy
People are less inclined to work, produce,
invest, or purchase if large risk of their
property being stolen
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
21
Principle 7: Governments Can Sometimes
Improve Market Outcomes
Government – promote efficiency
Avoid market failures: market left on its
own fails to allocate resources efficiently
Externality source of market failure
Production or consumption of a good affects
bystanders (e.g. pollution)
Market power source of market failure
A single buyer or seller has substantial
influence on market price (e.g. monopoly)
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
22
Principle 7: Governments Can Sometimes
Improve Market Outcomes
Government – promote equality
Avoid disparities in economic wellbeing
Use tax or welfare policies to change how
the economic pie is divided
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
23
Active Learning 2
Discussion Question
In each of the following situations, what is the
governments role?
Does the governments intervention improve
the outcome?
a.
b.
c.
d.
Public schools for K-12
Workplace safety regulations
Public highways
Patent laws, which allow drug companies to
charge high prices for life-saving drugs
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
24
How the economy as a whole works
Principle 8: A countrys standard of living
depends on its ability to produce goods and
services
Principle 9: Prices rise when the
government prints too much money
Principle 10: Society faces sometimes a
short-run trade-off between inflation and
unemployment
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
25
Principle 8: Countrys Standard of Living Depends
on Its Ability to Produce Goods and Services
Huge variation in living standards
Across countries and over time
Average income in rich countries
Is more than ten times average income in
poor countries
The U.S. standard of living today
Is about eight times larger than 100 years ago
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
26
Principle 8: Countrys Standard of Living Depends
on Its Ability to Produce Goods and Services
Productivity: most important determinant
of living standards
Quantity of goods and services produced
from each unit of labor input
Depends on the equipment, skills, and
technology available to workers
Other factors (e.g., labor unions, competition
from abroad) have far less impact on living
standards
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
27
Principle 9: Prices Rise When the
Government Prints Too Much Money
Inflation
An increase in the overall level of prices in
the economy
In the long run
Inflation is almost always caused by
excessive growth in the quantity of money,
which causes the value of money to fall
The faster the government creates money,
the greater the inflation rate
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
28
Principle 10: Society Faces a Short-run Tradeoff between Inflation and Unemployment
Short-run trade-off between
unemployment and inflation
Over a period of a year or two, many
economic policies push inflation and
unemployment in opposite directions
Other factors can make this tradeoff more
or less favorable, but the tradeoff is
always present
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
29
Summary
Fundamental lessons about individual
decision making:
People face trade-offs among alternative
goals
The cost of any action is measured in terms
of forgone opportunities
Rational people make decisions by comparing
marginal costs and marginal benefits
People change their behavior in response to
the incentives they face
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
30
Summary
Fundamental lessons about interactions
among people:
Trade and interdependence can be mutually
beneficial
Markets are usually a good way of
coordinating economic activity among people
The government can potentially improve
market outcomes by remedying a market
failure or by promoting greater economic
equality
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
31
Summary
Fundamental lessons about the economy
as a whole:
Productivity is the ultimate source of living
standards
Growth in the quantity of money is the
ultimate source of inflation
Society faces a short-run trade-off between
inflation and unemployment
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
32
N. GREGORY MANKIW
PRINCIPLES OF
MICROECONOMICS
Eighth Edition
CHAPTER
2
Thinking Like an
Economist
Premium PowerPoint Slides by:
V. Andreea CHIRITESCU
Eastern Illinois University
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
1
Look for the answers to these questions:
What are economists two roles? How do they
differ?
What are models? How do economists use them?
What are the elements of the Circular-Flow
Diagram? What concepts does the diagram
illustrate?
How is the Production Possibilities Frontier related
to opportunity cost? What other concepts does it
illustrate?
What is the difference between microeconomics and
macroeconomics? Between positive and normative?
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
2
The Economist as a Scientist
Economists play two roles:
1. Scientists: try to explain the world
2. Policy advisors: try to improve it
As scientists, economists employ the
scientific method
Dispassionate development and testing of
theories about how the world works
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
3
The Economist as a Scientist
Assumptions
Simplify the complex world and make it
easier to understand
Example: to study international trade,
assume two countries and two goods
Economists use models to study
economic issues
Highly simplified representation of
a more complicated reality
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
4
The Economist as a Scientist
Examples of models:
The model teeth at the dentists office
A model of human anatomy from high
Dont forget
school biology class
to floss!
A road map
©ittipon/Shutterstock.com
©wavebreakmedia/Shutterstock.com
©Accord/Shutterstock.com
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
5
The Economist as a Scientist
Circular-flow diagram
Visual model of the economy
Shows how dollars flow through markets
among households and firms
Two decision makers
Firms and Households
Interacting in two markets
Market for gods and services
Market for factors of production (inputs)
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
6
Figure 1 The circular flow
Households:
? Own the factors of production,
sell/rent them to firms for income
? Buy and consume goods & services
Firms
Households
Firms:
? Buy/hire factors of production,
use them to produce goods and
services
? Sell goods & services
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
7
Figure 1 The circular flow
Revenue
G&S
sold
Markets for
Goods &
Services
Firms
Factors of
production
Wages, rent,
profit
Spending
G&S
bought
Households
Markets for
Factors of
Production
Labor, land,
capital
Income
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
8
The PPF
Production possibilities frontier
A graph: combinations of output that the
economy can possibly produce
Given the available
Factors of production and technology
Example:
Two goods: computers and wheat
One resource: labor (measured in hours)
Economy has 50,000 labor hours per month
available for production
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
9
PPF Example
Producing one computer requires 100 hours labor.
Producing one ton of wheat requires 10 hours labor.
Employment of
labor hours
Production
Computers
Wheat
Computers
Wheat
A
50,000
0
500
0
B
40,000
10,000
400
1,000
C
25,000
25,000
250
2,500
D
10,000
40,000
100
4,000
E
0
50,000
0
5,000
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
10
PPF Example
Production
Point
on
Comgraph puters Wheat
A
B
500
400
0
1,000
C
250
2,500
D
100
4,000
E
0
5,000
Wheat
(tons)
6,000
5,000
E
D
4,000
3,000
C
2,000
B
1,000
A
0
0
100 200 300 400 500 600
Computers
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
11
Active Learning 1
Points off the PPF
On the graph above, find the point that
represents (100 computers, 3000 tons of
wheat), label it F.
Would it be possible for the economy to
produce this combination of the two goods?
Why or why not?
Next, find the point that represents (300
computers, 3500 tons of wheat), label it G.
Would it be possible for the economy to
produce this combination of the two goods?
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
12
Active Learning 1
Point F: 100
computers, 3000
tons wheat
Requires 40,000
hours of labor
Possible but not
efficient: could
get more
of either good
without
sacrificing any of
the other
Answers
Wheat
(tons)
6,000
5,000
4,000
3,000
F
2,000
1,000
0
0
100 200 300 400 500 600
Computers
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
13
Active Learning 1
Point G: 300
computers, 3500
tons wheat
Requires 65,000
hours of labor.
Not possible
because the
economy only
has 50,000
hours
Answers
Wheat
(tons)
6,000
5,000
4,000
G
3,000
2,000
1,000
0
0
100 200 300 400 500 600
Computers
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
14
The PPF: What We Know So Far
Points on the PPF (like A E): possible
Efficient: all resources are fully utilized
Points under the PPF (like F): possible
Not efficient: some resources are
underutilized (e.g., workers unemployed,
factories idle)
Points above the PPF (like G)
Not possible
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
15
The PPF
Moving along a PPF
Involves shifting resources from the
production of one good to the other
Society faces a tradeoff
Getting more of one good requires
sacrificing some of the other
The slope of the PPF
The opportunity cost of one good in terms
of the other
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
16
The PPF and Opportunity Cost
Wheat
(tons)
1000
slope =
= 10
100
6,000
5,000
The slope of a line
equals the rise
over the run.
4,000
3,000
Opportunity cost of
1 computer =
10 tons of wheat.
2,000
1,000
0
0
100 200 300 400 500 600
Computers
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
17
Active Learning 2
PPF and Opportunity Cost
In which country is the opportunity cost of
cloth lower?
FRANCE
ENGLAND
Wine
Wine
600
600
500
500
400
400
300
300
200
200
100
100
0
0
0
100 200 300 400
Cloth
0
100 200 300 400
Cloth
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
18
Active Learning 2
Answers
England, because its PPF is not as steep as Frances
FRANCE
ENGLAND
Wine
Wine
600
600
500
500
400
400
300
300
200
200
100
100
0
0
0
100 200 300 400
Cloth
0
100 200 300 400
Cloth
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
19
Economic Growth and the PPF
With additional
resources or an
improvement in
technology,
the economy can
produce more
computers,
more wheat,
Wheat
(tons)
6,000
5,000
4,000
Economic
growth sh
