Chapter One Homework

• Numbers 4, 6, and 8

Appendix for Chapter 1

Graphing and Algebra Review

Figure 1A.4 The Effect of a Change in Intercept on the Curve

Figure 1A.5 The Effect of a Change in Slope on the Curve

Figure 1A.6 Lines with Zero and Infinite Slopes

Figure 1A.7 Graphing a Nonlinear Relationship

Slope of a curve

• Take the first derivative of the equation

• OR…. Choose two points along the curve Draw a tangent line between them Find the slope of the tangent line This will APPROXIMATE the slope

Appendix 1 Homework

• Numbers 2, 6, 8, and 10

Chapter 2

Efficiency and Allocation in the Global Economy

Introduction

• Because of scarcity we cannot produce everything. We have to choose what to produce. Security or education ?

• How are those choices made?

• What are the consequences of our choices?

Factors of Production

• Four basic types of resources, or inputs. Land, labor, capital, and entrepreneurship

• Together, these are known as factors of production. What and how a nation produces is

determined by its factor endowment.•How much of each “we” have.

Land

• Natural resource used for agriculture, housing, industrial production, and recreation. Also includes other natural resources:

•Water

•Gas

•Oil Deposits

•Minerals

•Forests

Labor

• Physical and mental talents available to produce goods and services. Labor Force—the number of people over the

age of 16 that are willing and able to work. Human Capital—the knowledge, experience,

and innate ability of individuals.

Capital

• Buildings and equipment that can be used to produce other goods and services. Also called capital goods or physical capital Consumption goods cannot be used to produce other

goods and services.

• Financial capital is the money that firms spend on buildings and equipment.

Entrepreneurship

• Entrepreneurs organize, operate, and assume the risk of business ventures. The people with the big ideas

Production Technology

• The way in which an economy employs the factors of production. Production function

•Q = f(K, L)

The Production Possibilities Frontier (PPF)

• Graphical representation of the combinations of goods and services that an economy can produce in a given time period.

Gross Domestic Product

• Market value of all final goods and services produced in a given period in an economy.

• GDP per capita measures output per person. GDP divided by the population Used when comparing economies of different

sizes

Figure 2.1(a) The Production Possibilities Frontier (PPF)

Figure 2.1(b) The Production Possibilities Frontier (PPF)

PPF assumptions

• Fixed level of resources

• All resources fully employed

• Constant level of technology and human capital

• What is another name for the slope of the PPF? Opportunity cost

Where can we be on the PPF??

• Can we be On the curve??

•Yes efficient

Under the curve??•Yes inefficient

Over the curve??•No not enough resources