Opportunity Cost

Tony is really good with building technology. He wants to sell his TV sets and computers to make some extra money. But only has an hour to build (Tony was an eagle scout in high school and is somehow able to build this all in an hour, he’s amazing). He can sell the TV set for $5 per set and he can make $50 off of each computer. What opportunity costs will he have to make to generate the highest revenue? How many of each product should Tony sell?

Possibilities: 1: $175, 2: $215, 3: $250, 4: $300, 5: $250 ----- Possibility 4 (20 TVs and 4 Computers) is the best

Economic Growth (Production Possibility Frontier)

Reasons an economy would experience growth:

1. Factors of Production

2.Technology

Say Tony makes bank from his first week as a tech salesman and invests in more factors of production. The store he buys technology parts from has also just stocked new state-of-the-art pieces that help Tony build even faster.

Which direction will his Production Possibility Frontier shift?

Outwards

Key Terms: Chapter 1

  1. An economy is a system for coordinating society’s productive activities.
  2. A market economy is an economy in which decisions about production and consumption are made by individual producers and consumers.
  3. The invisible hand refers to the way in which the individual pursuit of self-interest can lead to good results for society as a whole.
  4. Economics is the social sciences that studies the production, distribution, and consumption of goods and services
  5. When the individual pursuit of self-interest leads to bad results for society as a whole, there is market failure.
  6. A recession is a downturn in the economy.
  7. Microeconomics is the branch of economics that studies how people make decisions and how these decisions interact.
  8. Economic growth is the growing ability of the economy to produce goods and services.
  9. Macroeconomics is the branch of economics that is concerned with overall ups and downs in the economy.
  10. The real cost of an item is its opportunity cost: what you must give up in order to get it.
  11. Decisions about whether to do a bit more or a bit less of an activity are marginal decisions. The study of such decisions is known as marginal analysis.
  12. Factors of production are resources used to produce goods and services.
  13. Technology is the technical means for producing goods and services.
  14. A resource is anything that can be used to produce something else.
  15. Resources are scarce -- not enough of the resources are available to satisfy all the various ways a society wants to use them.

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