OUTLINE -- CHAPTER 2
The Economizing Problem: Making Choices

I. The Necessity of Choice -- Production Possibilities

A. The Economizing Problem -- The Necessity of Choice

1. Unlimited Wants
2. Limited resources

B. Production Possibilities -- Demonstrating the Necessity of Choice

1. Production Possibilities Table

a. shows the MAXIMUM POSSIBLE LEVELS OF PRODUCTION given the assumptions
b. assumptions

1) fixed resources
2) fixed technology
3) productive efficiency
4) full employment
5) only two goods

c. the necessity of choice -- Unattainable combinations

2. Production Possibilities Curve

a. the necessity of choice -- Unattainable combinations
b. opportunity costs

1) ALL costs in economics are opportunity costs
2) definition
3) examples
4) calculating opportunity costs

c. law of increasing costs

1) definition
2) shape of the PPC -- concave
3) rationale

d. unemployment
e. productive inefficiency
f. economic growth (Macro Issue)

    1) Two (Three) Definitions

    • Increasing our ABILITY to Produce (Ch 2 Def.)
    • Increasing Output
      • graphically
      • reduce UE
      • reduce. prod ineff.
      • OR Ch. 2 Def. ?
    • GDP per capita

    2) a shrinking PPC?
    3) non-proportional growth

g. present choices, future possibilities
h. optimum product mix? (allocative efficiency?)

C. Real World Applications

1. microeconomic budgeting
2. going to war
3. discrimination
4. lumber vs. owls
5. productivity slowdown
6. growth: Japan vs. U.S.
7. international trade
8. famine in Africa
8. Castro's Cuba

II. The Circular Flow Model

A. Two Markets

1. product market

a. how much to buy
b. how much to produce

2. resource market

a. how many to hire
b. how much we earn

B. Two Flows

1. real flow
2. money flow

C. Reversal of Roles
D. Limitations