Homework: Answer Chapter 1 Discussion Questions 9 & 10.
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Transcript of Homework: Answer Chapter 1 Discussion Questions 9 & 10.
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Homework:
- Answer Chapter 1 Discussion Questions 9 & 10.
- Answer AP Review Questions 6 & 7. - Do Problems #1, 2, 5, 6, & 7 on pages
22 & 23.
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Questions from last Thursday’s problem sets?
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Chapter 1 Review
The Economizing ProblemSociety’s wants are unlimited.Economic resources are scarce.
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Resource Categories• Land (land and natural resources)• Capital: all manufactured goods used in
producing consumer goods and services.– NOT money, that’s how it’s used in finance.
• Labor• Entrepreneurial Ability
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Resources• Resources are also known as the
FACTORS OF PRODUCTION.- Your book will refer to “resource markets” where these resources are bought and sold, and that’s fine, but AP generally uses the term “factor markets.”
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The Economizing Problem• Using scarce resources to satisfy the maximum
amount of wants. To get there, an economy must attain:
• Full Employment: full use of all available resources (not just labor).
• Full Production: Most efficient use of our resources.– Productive efficiency: the production of goods and
services in the least costly way.–Allocative efficiency (optimal allocation): producing
the particular mix of goods and services that society most wants.
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Production Possibilities Tables, Curves, Frontiers.
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The Production Possibilities Curve
• Is Downward Sloping.–Why?
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The Production Possibilities Curve
• Is Bowed Out (or concave) to the axis.–Why?
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The Production Possibilities Curve
• It’s Bowed Out due to the law of increasing opportunity costs.
Wheat
R
ice
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A production possibilities curve for security and all other goods and services. What is the opportunity cost of increasing security from SA to SB ?Answer: OA - OB
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The Production Possibilities Curve• You will see some PPCs that are straight,
rather than bowed out.–What does
that tell us?–Why use a
straight PPC?– Review: tell
me about these points:X, W, A-E.
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Allocative Efficiency (optimal allocation)
• What combination of goods and services is most wanted by society?• Requires that the production or
consumption of a good be increased until its marginal benefit = marginal cost.
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Unemployment and Productive Inefficiency
• Both will cause an economy to produce goods at some point inside of its PPC.
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Economic Growth• Will cause a PPC to shift outwards.
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1. Assume that Patelland produces only socks and shoes, and that its available resources are not completely adaptable to both purposes.
a. Sketch a correctly labeled PPC for Patelland. (2 pts.)
b. Draw and label a point on the PPC that shows Patelland experiencing unemployment. (1 pt.)
c. Draw a new curve on your PPC that shows the effect of an increase in land suitable for growing cotton and improvements in leather tanning technology. (2 pts.)
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2. Assume that Bloomersburg produces only bats and balls, and that its available resources are completely adaptable to both purposes.
a. Sketch a correctly labeled PPC for Bloomersburg. (2 pts.)
b. Draw and label a point on the PPC that shows Bloomersburg operating at full employment and productive efficiency. (1 pt.)
c. Draw a new curve on your PPC that shows the effect of an improvement in wood-turning lathes in Bloomersburg. (2 pts.)
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