Presentación 2 - El problema económico

8/9/2019 Presentacin 2 - El problema econmico

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The Economic Problem

CHAPTER 2


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After studying this chapter you will be able to

Define the production possibilities frontier and calculateopportunity cost

Distinguish between production possibilities andpreferences and describe an efficient allocation ofresources

Explain how current production choices expand futureproduction possibilities

Explain how specialization and trade expand ourproduction possibilities

Describe the economic institutions that coordinatedecisions


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Good, Better, Best!

For many people, life is good and getting better.

But we all face costs and must choose what we think isbest for us.

This chapter sharpens the concepts of scarcity andopportunity cost.

It introduces the idea of economic efficiency.

It also explains how we can expand production by

accumulating capital and by specializing and trading witheach other.


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Production Possibilities and Opportunity

Cost

The production possibilities frontier(PPF) is the

boundary between those combinations of goods andservices that can be produced and those that cannot.

To illustrate the PPF, we focus on two goods at a time and

hold the quantities of all other goods and services

constant.That is, we look at a model economy in which everything

remains the same (ceteris paribus) except the two goods

were considering.


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Cost

Production Possibilities

Frontier

Figure 2.1 shows the PPF

for two goods: CDs andpizza.

Any point on the frontier

such as Eand any point

inside the PPFsuch as Zare attainable.

Points outside the PPF

are unattainable.


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Cost

Production Efficiency

We achieve production

efficiency if we cannotproduce more of one good

without producing less of

some other good.

Points on the frontier areefficient.


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Cost

Any point inside thefrontier, such as Z, isinefficient.

At such a point, it ispossible to produce moreof one good withoutproducing less of theother good.

At Z, resources are eitherunemployed ormisallocated.


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CostTradeoff Along the PPF

Every choice along the

PPFinvolves a tradeoff.

On this PPF, we must giveup some CDs to get more

pizzas or give up some

pizzas to get more CDs.


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Cost

Opportunity Cost

The PPFmakes the

concept of opportunity

cost precise.

As we move down along

the PPF, we produce

more pizzas but the

quantity of CDs we canproduce decreases.

The opportunity cost of a

pizza is the CDs forgone.


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CostIn moving from Eto F, the

quantity of pizzas produced

increases by 1 million.

The quantity of CDs

produced decreases by 5

million.

The opportunity cost of

producing the fifth 1 millionpizzas is 5 million CDs.

One of these pizzas costs

5 CDs.


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Cost

In moving from Fto E, thequantity of CDs producedincreases by 5 million.

The quantity of pizzasproduced decreases by 1million.

The opportunity cost of

the first 5 million CDs is 1million pizzas.

One of these CDs costs1/5 of a pizza.


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Cost

Note that the opportunitycost of a CD is the inverseof the opportunity cost of a

pizza.One pizza costs 5 CDs.

One CD costs 1/5 of apizza.


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Cost

Because resources are not

all equally productive in all

activities, the PPFbows

outwardis concave.The outward bow of the

PPFmeans that as the

quantity produced of each

good increases, so does

its opportunity cost.


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Using Resources Efficiently

All the points along the PPFare efficient.

To determine which of the alternative efficient quantities

to produce, we compare costs and benefits.

The PPFand Marginal Cost

The PPFdetermines opportunity cost.

Themarginal cost of a good or service is the opportunity

cost of producing one more unitof it.


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In part (b) ofFig. 2.2, thebars illustrate theincreasing opportunity

cost of pizza.

The black dots

and the line labeled MCshow the marginal cost ofpizza.

The MCcurve passesthrough the center of eachbar.


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Preferences and Marginal Benefit

Preferences are a description of a persons likes and

dislikes.

To describe preferences, economists use the concepts ofmarginal benefit and the marginal benefit curve.

Themarginal benefit of a good or service is the benefit

received from consuming one more unit of it.

We measure marginal benefit by the amount that aperson is willing to payfor an additional unit of a good or

service.


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It is a general principle that the more we have of any

good, the smaller is its marginal benefit and the less we

are willing to pay for an additional unit of it.

We call this general principle theprinciple of decreasingmarginal benefit.

Themarginal benefit curve shows the relationship

between the marginal benefit of a good and the quantity

of that good consumed.


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Figure 2.3 shows a

marginal benefit curve.

The curve slopesdownward to reflect the

principle of decreasing

marginal benefit.

At point A, with pizza

production at 0.5 million,

people are willing to pay

5 CDs for a pizza.


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At point B, with pizza


people are willing to pay4 CDs for a pizza.

At point E, with pizza


people are willing to pay1 CD for a pizza.


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Efficient Use of Resources

When we cannot produce more of any one good without

giving up some other good, we have achievedproduction

efficiency.

We are producing at a point on the PPF.

When we cannot produce more of any one good without

giving up some other good that we value more highly, we

have achieved allocative efficiency.

We are producing at the point on the PPFthat we prefer

above all other points.


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Figure 2.4 illustratesallocative efficiency.

The point of allocativeefficiency is the point onthe PPFat which marginalbenefit equals marginalcost.

This point is determined by

the quantity at which themarginal benefit curveintersects the marginalcost curve.


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We get more value fromour resources byproducing more pizzas.

On the PPFat point A, weare producing too manyCDs, and we are better offmoving along the PPFtoproduce more pizzas.

If we produce fewer than2.5 million pizzas,marginal benefit exceedsmarginal cost.


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We get more value fromour resources byproducing fewer pizzas.

On the PPFat point C, weare producing too manypizzas, and we are betteroff moving along the PPFto produce fewer pizzas.

If we produce more than2.5 million pizzas,marginal cost exceedsmarginal benefit.


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We cannot get morevalue from our resources.

On the PPFat point B,we are producing theefficient quantities of CDsand pizzas.

If we produce exactly2.5 million pizzas,marginal cost equalsmarginal benefit.


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Economic Growth

The expansion of production possibilitiesand increase in

the standard of livingis called economic growth.

Two key factors influence economic growth:

Technological change

Capital accumulation

Technological change is the development of new goods

and of better ways of producing goods and services.Capital accumulation is the growth of capital resources,

which includes human capital.


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Economic Growth

The Cost of Economic Growth

To use resources in research and development and

to produce new capital, we must decrease ourproduction of consumption goods and services.

So economic growth is not free.

The opportunity cost of economic growth is less

current consumption.


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Economic Growth

Figure 2.5 illustrates the

tradeoff we face.

We can produce pizzas

or pizza ovens along

PPF0.

By using some

resources to produce

pizza ovens today, thePPFshifts outward in

the future.


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Gains from Trade

Comparative Advantage and Absolute Advantage

A person has a comparative advantage in an activity if

that person can perform the activity at a lower opportunity

cost than anyone else.

A person has an absolute advantage if that person more

productive than others.

Absolute advantage involve comparing productivities

while comparative advantage involve comparing

opportunity costs.


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To reap the gains from trade, the choices of individuals

must be coordinated.

To make coordination work, four complimentary social

institutions have evolved over the centuries: Firms

Markets

Property rights

Money

Economic Coordination


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A firm is an economic unit that hires factors of productionand organizes those factors to produce and sell goods andservices.

Amarket is any arrangement that enables buyers andsellers to get information and do business with each other.

Property rights are the social arrangements that governownership, use, and disposal of resources, goods orservices.

Money is any commodity or token that is generallyacceptable as a means of payment.


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Circular FlowsThrough Markets

Figure 2.8 illustrateshow households andfirms interact in themarket economy.

Factors ofproduction andgoods and services

flow in one direction.And money flows inthe oppositedirection.


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Coordinating

Decisions

Markets coordinate

individual

decisions throughprice adjustments.


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Presentación 2 - El problema económico

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