The Fundamentals of
Economics
Societys Technological Possibilities
Inputs & Outputs
Factors of Production
Production Possibility Frontier
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Individuals Economizing Problem
Limited Income
Unlimited Wants
A Budget Line
Attainable and Unattainable
Combinations
Tradeoffs & Opportunity Costs
Choice
Income Change
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Individuals Economizing Problem
DVDs Books
$20
$10
6
5
4
3
2
1
0
0
2
4
6
8
10
12
12
10
Income = $120
Quantity of DVDs
$120 Budget
Pdvd = $20
Unattainable
Income = $120
= 12
Pb = $10
4
2
0
=6
Attainable
10
Quantity of Books
12
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Societys Economizing Problem
Scarce Resources
Resource Categories
Land
Labor
Capital
Investment
Entrepreneurial Ability
Factors of Production
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Production Possibilities Model
Full Employment
Fixed Resources
Fixed Technology
Two Goods
Consumer Goods (Pizzas)
Capital Goods (Industrial Robots)
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Production Possibilities Model
Production Possibilities Table
Production Alternatives
Type of Product
Pizzas
10
(in hundred thousands)
Industrial Robots
(in thousands)
Plot Points to Create Graph
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Production Possibilities Model
Industrial Robots
Production Possibilities Curve
A
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13
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11
10
9
8
7
6
5
4
3
2
1
Unattainable
A
B
Economic
Growth
C
C
D
D
Now Attainable
Attainable
E
0
8 9
Pizzas
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Production Possibilities Model
Industrial Robots
Production
Possibilities Curve
A
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Unattainable
A
B
C
C
D
D
Attainable
E
E
0
8 9
Pizzas
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Syed Arshad Hussain Lecturer
Production Possibilities Model
Industrial Robots
Production
Possibilities Curve
A
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Unattainable
C
U
D
Under or
Unemployment
E
0
8 9
Pizzas
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Unemployment Growth and the
Future
A Growing Economy
Economic Growth
Increasing Resource Supplies
Increasing Resource Quality
Technological Advances
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Present Choices & Future
Possibilities
Future
Curve
Current
Curve
Goods for the Present
Presentville
Goods for the Future
Goods for the Future
Compare Two Hypothetical Economies
Future
Curve
F
Current
Curve
Goods for the Present
Futureville
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Chapter 1
Figure 1-1
The Production Possibilities in a
Graph
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Chapter 1
Figure 1-2
The Production-Possibility
Frontier
PPF shows how the
production of one good is
traded off against the
production of another good.
In the world of scarcity,
choosing one thing means
giving up something else.
The value of the good or
service forgone is its
opportunity cost.
PPF shows how the
production of one good is
traded off against the
production of another good.
When an economy is on its
PPF, it can produce more of
one good only by producing
less of another good.
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Chapter 1
Figure 1-3
Economic Growth Shifts
the PPF Outward
With economic growth, a nation moves from A to B, expanding its food consumption little compared
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with its increased consumption of luxuries. It can increase its consumption
both Hussain
goods if it
desires.
SyedofArshad
Lecturer
Chapter 1
Figure 1-4
Economics Must Choose between
Public Goods and Private Goods
(a) A poor frontier society lives from hand to mouth, with little left for public goods like
highways or public health.
(b) Modern urbanized economy is prosperous and chooses to spend more of its higher
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Syed
Arshad
Hussain
Lecturer
on public goods and government services.
Chapter 1
Figure 1-5
Investment for Future Consumption
Requires Sacrificing Current
Consumption
Countries that invest more heavily forge ahead with this they have higher investment and
consumption in the future.
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The Production-Possibility
Frontier
Sources of Growth and the Dilemma of Poor Countries
Capital Goods and Growth in Poor
and Rich Countries
Rich countries find it easier than
poor countries to devote
resources to the production of
capital, and the more resources
that flow into capital production,
the faster the rate of economic
growth.
Thus, the gap between poor and
rich countries has grown over
time.
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The Fundamentals of
Economics
Read Chapter 2
Markets and Government in a
Modern Economy
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