uk
Introduction to Economics
The Economic Problem Opportunity Cost Production Possibility Frontiers
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Opportunity Cost
Definition the cost expressed in terms of the next best alternative sacrificed Helps us view the true cost of decision making Implies valuing different choices
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Capital Goods
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If it devotes all resources to its capital If it reallocates can produce two at point A on the resources round goods it (moving could types of the PPF A to B) it can PPF Itfrom can produce agoods maximum produce more consumer with its resources of Ym. produce the
goods but only at the capital goods combination of expense of fewer If it devotes allcapital its Yo and consumer goods. The opportunity resources to capital goods and goods cost of producing anit extra consumer goods Xo Xo consumer X1 consumer goods could produce a is Yo Y1 goods capital goods.
Yo
maximum of Xm
Y1
Xo
X1 Xm Consumer Goods
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Capital Goods
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A
B
It can only produce at points outside the PPF inside the PPF if it finds a way of e.g. point B expanding its resources improves means or the the productivity of country is not those resources it usinghas. all This its will already resources push the PPF further outwards.
Xo X1
Consumer Goods
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Positive Statements:
Capable of being verified or refuted by resorting to fact or further investigation
Normative Statements:
Contains a value judgement which cannot be verified by resort to investigation or research