Economics 2: Scarcity & Productive Efficiency
Economics: “The study of how individuals and economies deal with scarcity”
Opportunity cost: The cost of not selecting the next best alternative Only 1 opportunity cost
Marginal –benefit, -cost, -revenue
Marginal benefit: “Additional benefit associated with a 1-unit increase in activity level”
Marginal cost: “Additional cost associated with a 1-unit increase in activity level”
Example: Kelsee makes 20 johnny cakes; Economist want to know how much profit she
will make from 1 additional (The 21st) johnny cake.
Activity rises = Marginal benefit > Marginal cost
Net benefit rises as activity decreased = Marginal cost > Marginal benefit
Supply curve = Marginal Cost Curve
Individual marginal cost curve: Shows the extra cost
a seller incurs to produce 1 more unit of goods
Market marginal cost curve: Combine individual
marginal cost curves
Example: To supply more rice, more land
Demand curve =
Marginal benefit curve
Individual marginal benefit curve: Shows the extra benefit a
buyer enjoys by consuming 1 more unit of goods
Example: Buyer eats more rice, satisfaction decreases
, Drill for more oil until marginal cost = $100 oil
price
If Marginal cost > $100 = Profit
Production Possibilities Frontier Curve (PPF/PPC)
PPF: show all possible combinations of output that can be produced given
Illustrates tradeoffs of scarcity
PPF assume:
Fixed quantity and quality or available resources
Fixed technology
Efficient production: “No unemployed/underemployed resources”
3 parts to PFF:
Under the curve: Underutilizing factors of production/resources (Inefficient)
On the curve: Maximizing use of factors of production/resources (Efficient)
Over the curve: Based on current resources, we can’t produce outside the curve
(Unattainable with current resources)
PPF Shifters:
Change in quantity/quality of resources
Change in technology
(Trade)
Example: In 1920 corn & cars, now we can make more because better and more resources and
better technology
Trade can also shift PPF curve:
“Allows countries to consume beyond their production possibilities”
Can get more through trade, can’t produce more
Consumer goods: “Created for direct consumption” Pizza
Economics: “The study of how individuals and economies deal with scarcity”
Opportunity cost: The cost of not selecting the next best alternative Only 1 opportunity cost
Marginal –benefit, -cost, -revenue
Marginal benefit: “Additional benefit associated with a 1-unit increase in activity level”
Marginal cost: “Additional cost associated with a 1-unit increase in activity level”
Example: Kelsee makes 20 johnny cakes; Economist want to know how much profit she
will make from 1 additional (The 21st) johnny cake.
Activity rises = Marginal benefit > Marginal cost
Net benefit rises as activity decreased = Marginal cost > Marginal benefit
Supply curve = Marginal Cost Curve
Individual marginal cost curve: Shows the extra cost
a seller incurs to produce 1 more unit of goods
Market marginal cost curve: Combine individual
marginal cost curves
Example: To supply more rice, more land
Demand curve =
Marginal benefit curve
Individual marginal benefit curve: Shows the extra benefit a
buyer enjoys by consuming 1 more unit of goods
Example: Buyer eats more rice, satisfaction decreases
, Drill for more oil until marginal cost = $100 oil
price
If Marginal cost > $100 = Profit
Production Possibilities Frontier Curve (PPF/PPC)
PPF: show all possible combinations of output that can be produced given
Illustrates tradeoffs of scarcity
PPF assume:
Fixed quantity and quality or available resources
Fixed technology
Efficient production: “No unemployed/underemployed resources”
3 parts to PFF:
Under the curve: Underutilizing factors of production/resources (Inefficient)
On the curve: Maximizing use of factors of production/resources (Efficient)
Over the curve: Based on current resources, we can’t produce outside the curve
(Unattainable with current resources)
PPF Shifters:
Change in quantity/quality of resources
Change in technology
(Trade)
Example: In 1920 corn & cars, now we can make more because better and more resources and
better technology
Trade can also shift PPF curve:
“Allows countries to consume beyond their production possibilities”
Can get more through trade, can’t produce more
Consumer goods: “Created for direct consumption” Pizza
