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What will I learn in What will I learn in this chapter?this chapter?
•Having learned that Having learned that scarcity forces choices, scarcity forces choices, here you will study the here you will study the choices people make in choices people make in more detailmore detail
What isWhat isopportunity cost?opportunity cost?•The best alternative The best alternative sacrificed for a sacrificed for a chosen alternativechosen alternative
What opportunity cost What opportunity cost am I experiencing am I experiencing
now?now?•The most money that you The most money that you could be making if you were could be making if you were somewhere else instead of somewhere else instead of studying these slides studying these slides
What isWhat ismarginal analysis?marginal analysis?•An examination of the An examination of the effects of additions to effects of additions to or subtractions from a or subtractions from a current situationcurrent situation
What is an example of What is an example of marginal analysis?marginal analysis?
•When your benefit of When your benefit of studying these slides studying these slides exceeds the opportunity exceeds the opportunity cost, you will spend time cost, you will spend time studying these slidesstudying these slides
What is a production What is a production possibilities curve?possibilities curve?
•A curve that shows the A curve that shows the maximum combinations of maximum combinations of two outputs that an two outputs that an economy can produce, economy can produce, given its available given its available resources and technologyresources and technology
What is the conclusion What is the conclusion of the production of the production
possibilities curve?possibilities curve?•Scarcity limits an Scarcity limits an economy to points on economy to points on or below its production or below its production possibilities curvepossibilities curve
What are What are efficient points?efficient points?
•Because all the points Because all the points along the curve are along the curve are maximum output levels maximum output levels with given resources with given resources and technology, they are and technology, they are called efficient pointscalled efficient points
What happens when What happens when we move between we move between
two efficient points?two efficient points?•A movement between any two A movement between any two
efficient points on the curve efficient points on the curve means that more of one means that more of one product is produced only by product is produced only by producing less of the otherproducing less of the other
What is the law of What is the law of increasing increasing
opportunity costs?opportunity costs?•The principle that the The principle that the opportunity cost opportunity cost increases as production increases as production of one output expandsof one output expands
•The ability of an economy The ability of an economy to produce greater levels to produce greater levels of output, an outward of output, an outward shift of its production shift of its production possibilities curvepossibilities curve
•The accumulation of The accumulation of capital, such as factories, capital, such as factories, machines, and inventories, machines, and inventories, that is used to produce that is used to produce goods and servicesgoods and services
What is the What is the opportunity cost of opportunity cost of
investment?investment?
•The consumer goods that The consumer goods that could have been purchased could have been purchased with the money spent for with the money spent for plants and other capitalplants and other capital
What conclusion can What conclusion can we make about we make about investments?investments?
•A nation can accelerate A nation can accelerate growth by increasing growth by increasing production of capital goods production of capital goods in excess of the capital in excess of the capital being worn outbeing worn out