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Trade-Offs

Trade-Offs. Scarcity implies trade-offs TANSTAAFL What determines our trade-offs?. Opportunity Costs. Definition: Value of resources in their best alternative use Examples Going to a movie Studying Cash under pillow Home canning Wood chopping. The Economics of Star Trek.

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Trade-Offs

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  1. Trade-Offs • Scarcity implies trade-offs • TANSTAAFL • What determines our trade-offs?

  2. Opportunity Costs • Definition: Value of resources in their best alternative use • Examples • Going to a movie • Studying • Cash under pillow • Home canning • Wood chopping

  3. The Economics of Star Trek

  4. Changing Opportunity Costs and Star Trek

  5. Graph of Star Trek Possibilities

  6. Production Possibilities Curve • A production possibilities curve illustrates opportunity cost by showing trade-offs among choices. • It shows the maximum number of outputs that can be achieved from a given amount of inputs.

  7. A Production Possibilities Curve for an Individual Hours of study Grade in Hours of study Grade in in history history in economics economics A: 20 hours of economics, 0 hours of history 20 98 0 40 A 100 19 96 1 43 18 94 2 46 17 92 49 3 B 88 16 90 4 52 15 88 5 55 6 14 86 58 Economics grade 7 13 84 61 12 82 8 64 E: 20 hours of history, 0 hours of economics C 70 11 80 9 67 10 78 10 70 9 76 1 1 73 8 74 76 12 7 72 79 13 6 70 14 82 5 68 15 85 D 46 4 66 16 88 E 3 64 17 91 40 58 66 78 94 98 2 62 18 94 1 60 19 97 History grade 0 58 20 100

  8. Increasing Marginal Opportunity Cost Slope is flat at A. Low opportunity cost of guns. A The principle of increasing marginal opportunity cost states that opportunity costs increase as you produce more of one product. Butter Slope is steep at B. High opportunity cost of guns. B Guns

  9. % of resources % of resources devoted to devoted to production production Pounds Number of guns of butter of butter Row of guns 0 0 100 15 A 20 4 80 14 B 40 7 60 12 C 60 9 40 9 D 80 1 1 20 5 E 100 12 0 0 F A Production Possibilities Table for Society

  10. 1 pound of butter 2 pounds of butter 5 pounds of butter 4 guns 3 guns 1 gun PPC for Society A 15 B 14 C 12 D 9 Butter E 5 F 4 7 9 11 12 0 Guns

  11. Efficient points Inefficient point Efficiency and Inefficiency 10 Unattainable point 8 C D 6 Guns B 4 A 2 0 2 4 6 8 10 Butter

  12. Shifts in the PPC Neutral Technological Change Biased Technological Change C Butter Butter C B A 0 0 D B A Guns Guns

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