The Principle of Opportunity Cost.PPT

The Principle of Opportunity Cost No matter what we do, there are always tradeoffs. Scarcity -- limited resources -- is the reason. The opportunity cost of something is what you sacrifice to get it. Opportunity Costs are Choices??? How should I spend my money ? How should I spend my time ? Opportunity cost is always measured by how much you give up of the next best alternative to get what you want. Opportunity Costs and Production Possibilities The production possibility curve illustrates the principle of opportunity cost for an entire economy. -- shows all possible combinations of goods and services available to entire economy. principle of opportunity cost explains why production possibility curve is negatively sloped. Shifting the Production Possibilities Curve The production possibilities curve will shift as a result of: An increase in the economy’s production factor -- natural resources -- labor -- physical capital -- human capital -- entrepeneurship Technological innovation that increases output from a given amount of resources. MARKET An arrangement which allows buyers and sellers to exchange money and goods. QUESTIONS ADDRESSED ABOUT TRADE Why do both rich and poor nations benefit from trade ? What is a firm, and how are firms organized ? Which of the industrialized nations has the lowest taxes ? Which nations are most dependent on international trade ? How do governments restrict international trade? What are GATT, NAFTA, and the World Trade Organization ? WHY DO MARKETS EXIST ? We are not self-sufficient: (We specialize in what we do best.) We trade what we make for goods or services we need, or for money to buy goods and services we need. Markets facilitate specialization and exchange. comparative ADVANTAGE EXCHANGE Productivity of two individuals Brenda Sam Bread Per Hour 6 1 Shirts Per Hour 2 1 ABSOLUT