TOPIC 1: INTRODUCTION TO ECONOMICS

Choice

George LeopoldClarence Harrison

Utility

Reference Page: 4

Utility with regard to economics can be described as the amount of satisfaction, happiness, or pleasure gained through the consumption of goods and services.

Utility can be measured, and functions can be used to determine the amount of ‘utils’ a particular good or service is.

Opportunity costs

Reference Page: 4

An opportunity cost is the next highest valued alternative that has to be given up in order to pursue a certain action.

For Example: The opportunity cost of going to college is the money you would have earned if you worked instead. On the one hand, you lose four years of salary while getting your degree; on the other hand, you hope to earn more during your career .

Economic good In economics, a good is a physical

object or service that has value to people and can be sold in the marketplace.

Production Possibilities Curves Simple two dimensional graph arbitrarily

representing the output of capital goods(on the vertical axis) and consumer goods(on the horizontal axis).

Also called production possibility frontier because it shows the limit of attainable outputs.

Curves due to unequal opportunity cost that are forgoed

Production possibilities curve

Reference pages: 26-27

The production possibility curves is a hypothetical representation of the amount of two different goods that can be obtained by shifting resources from the production of one, to the production of the other. The curve is used to describe a society’s choice between two different goods.

Economic Growth & Development

Reference Page: 30

Economic growth is the increase in the real GDP per capita over a period of time. It can be shown by an outward shift of the production possibility curve.

It is possible to have economic growth with no or little development. This can be demonstrated using the production possibility curve in the diagram below. In the left-hand diagram the economic growth has shifted the production possibility to the right. However, the majority of the additional goods produced are luxury goods and benefit the higher income earners. In this case there is little if any development. In the production possibility curve shown on the right-hand side the additional output consists of necessity items and these could benefit the low-income earners.

Useful sites www.bized.co.uk/virtual/ dc/diagrams/ www.econ.rochester.edu/ http://www.scribd.com/doc/17110601/Econ-Intro

Questions In the production possibilities model, economic growth increases primarily because of _____

factors that shift the production possibilities curve to the ____, but if there is less than full employment and production the economy ____ realize its potential.

Summing the marginal utilities of each unit consumed will determine total(A) cost(B) revenue(C) utility(D) consumption

After eating 8 chocolate chip cookies, you are offered a 9 th cookie. You turn down the cookie. Your refusal indicates that the (A) marginal utility for chocolate chip cookies is negative(B) total utility for chocolate chip cookies is negative(C) marginal utility is positive for the 8th and negative for the 9th(D) total utility was zero because you ate one cookie and refused the other

Utility and usefulness is synonymous T F ?

All consumers are subject to budget constraint T F ? A production possibilities frontier illustrates the ____________ facing an economy that________

only two goods.(A) prices, sells(B) trade-offs, produces(C) trade-offs, consumes(D) shortages, produces