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Microeconomics Lecture 3 Production Possibilities Frontier Exam 1 Review
What to make? How much to make? Who will make it? Who will consume it? Four Questions
How you slice the pie determines the size of the pie
Who decides? Government or Individuals
Planned Economy vs. Market Economy Government Economy vs. Individual Economy
Adam Smith Market Economy Individual Economy Karl Marx Planned Economy Government Economy
Adam Smith TheWealth of Nations 1776
Invisible Hand individual self interest promotes wealth
Price System is a Knowledge System
buyer and seller both win Voluntary Exchange
One Price Two values Every Exchange
Protect property rights What can government do?
the ability of an individual to own and control resources Property Rights
It’s cheaper to pay someone else than to do it myself Opportunity Cost is too high
0 200 400 600 800 1000 0 200 400 600 800 1000 600 0 iPad iPhone Production Possibilities Frontier Efficient Combinations Inefficient Impossible with current technology New innovation helps iPhone New innovation helps both Now possible 520 200 400 400 250 500 0 600
Exam 1 review • Terms and Concepts • Formulas • Blog • Book • 25 multiple choice questions • No cell phones - bring calculator
Terms and Concepts • Scarcity • Choices • Tradeoffs • Rational • Incentives • Behavior • Utility • Margin • Markets • Circular-Flow Diagram • Production Possibilities Frontier • Macro vs. Micro • Positive vs. Normative • Absolute Advantage • Comparative Advantage
Formulas Percentage Change % ∆ New - Old Old

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101 lecture 3