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Chapter 2 |
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Editors Notes: A. McConnell Economics Books, including the 18th edition, 
is one of many sources of material included in this chapter.B. Our Current Events Internet Library has an interesting economics section. I. The factors of production (economic resources) and resulting income
Note:
An entrepreneur risks their own resources to
make a profit while an intrapreneur has the
responsibilities of an entrepreneur |
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II. The Production Possibility Frontier (Curve) measures how many of two types of goods can be produced.  B. Dynamic Model (time is not constant,
inputs like factors and technology
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C.
Opportunity costs
1. The cost of Item A measured in terms of what must be foregone of Item B. 2. When considering doing A, we consider the highest valued alternative as limited resources means we can't afford both. 3. For more information visit the Production Possibilities Curve from Wikipedia. 4. Politicians seldom talk of the opportunity cost of what they plan to do. 5. Examples a. The opportunity cost of good grades is the value which could have been received by spending time with family and friends. College students video explores this example. b. The opportunity costs of more capital goods is the value which could have been received from having more consumer goods. c. The Guide to Country Profiles of the CIA World Factbook for 2007 reports 1. U.S. military spending was an estimated 4.06% of its 2005 GDP. 2. Here is a rank order of country percentages. 
3. What are the opportunity costs associated with high military spending? 4. CIA, Latest "The World Factbook 6. Opportunity Cost Video reviews thee principles with a 5-minute lecture. 7. Opportunity Cost Podcast from the St. Louis Fed
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D.
Law of increasing opportunity costs 1. Opportunity costs usually increase. a. To have one unit of Item A you must give up amount X of Item B. To have a second unit of Item A you must give up more than amount X of Item B. b. Primary reason for increasing costs is resources are not perfect substitutes. c. Examples 1) Training more people in math and science would increase productivity for a while but eventually people would be trained to be engineers who would be more productive as managers, teachers, or entertainers etc. 2 The gain from replacing people with machines may be large in the beginning but eventually machines would be used to do what people can do more efficiently. a. When opportunity costs are not increasing, the production possibility curve is a straight line. High tech investment may even bend the curve the other way and b. Below is an example of the trade-off between investing people in high tech industries versus entertainment industries. Suppose you have 10 entertainers and no technicians
Alernative Production Possibilities |
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