Economic Growth Homepages at WMU经济增长在WMU主页.pptxVIP

Review Economy Economics Because of scarcity and opportunity costs we need to take optimal decisions: WHWWW? Who makes the Decisions? HH, Firm, Govt Where do they make these decisions? Market Product Market (Prices) vs Factor Market (Rent, Wages, Interest, Profit) How do they make these decisions? RIM MB = MC allocative efficiency vs Produvtive vs. Equity Microeconomics Macroeconomics Opportunity cost From our definition of economics, we know that when we make choices, we face costs Definition: Opportunity cost is the cost in choosing in the face of scarcity - it is the value of the benefit that is forgone by choosing one alternative rather than another. Opportunity Cost II Note: 1) Opportunity cost is NOT money cost 2) Opportunity cost includes the value of time 3) Opportunity cost does not always remain the same Note: The principle of substitution states that, as opportunity costs change, individuals may choose to substitute one action for another action that has a lower opportunity cost. Production 2 types of production - goods and services Total Production Goods Services Capital Consumer Durable Non-Durable How can we better illustrate this trade off? Production Possibilities: An example Assumptions made: 1) only 2 goods produced (all the rest held constant by ceteris paribus condition) 2) A fixed level of technology and fixed amount of the factors of production are present. Suppose this firm (Firm A) can produce either cars or SUVs at the following ratio: CARS SUVs A. 0 100 B. 50 75 C. 100 50 D. 150 25 E. 200 0 These figures represent the maximum quantities of each combination. PPF for Firm A Cars SUVs 0 100 50 100 C A E 200 PPF and Opportunity Cost Here, we see that we have a linear PPF - this implies a constant slope of the PPF. Slope = (D cars)