In other words, she has an advantage in producing pizzas.
There is no comparative advantage in the production of wings.
She would have to give up 12 pizzas to make 1 wing.
Each time he makes a wing, he makes 3 pizzas.
The opportunity cost for produc ing wings is higher for Mike.
Mike has an advantage in producing wings because he is a low cost producer.
She is better at making pizzas and wings than anyone else.
She can't have a comparative advantage in making both goods.
The concept of opportunity cost helps us understand why people produce more.
Mike gives up 3 wings for every pizza, but his opportunity cost of producing pizzas is less.
The person should be able to produce pizzas.
If you want to double check, consider who should make the wings.
She gives up 12 pizza for every wing she makes, while Mike gives up 13 pizza for every wing he makes.
Mike should make wings.
Their combined output is 60 pizzas and 72 wings.
If they specialize and trade, they will do better.
We need to return to opportunity cost to answer this question.
Think of the process you probably went through when you traded lunch food with friends.
Maybe you wanted a friend's apple and he wanted a few of your cookies.
If you agreed to trade three cookies for an apple, it would benefit both of you because your friend valued his cookies more than yours.
In our example, Mike and Deb will benefit from exchanging a good at a lower price than the opportunity cost of producing it.
The opportunity cost is 1 pizza per 2 wings.
She ends up with more pizza and wings than she did without trade.
Mike has an opportunity cost of 1 pizza per 3 wings.
The amount of trade must fall between Mike's opportunity cost of 1:3 and the opportunity cost of 1:2 for it to be mutually beneficial.
The trade will not be attractive to both parties, so either Mike or Debra will be better off without it.
In the example shown in Table 2.3, there are 19 pizzas and 47 wings.
The advantage to both of them is that the ratio of 19:47 falls between the opportunity costs of both of them.
The man is 6'8" and 260 pounds.
You might think that he would move his household on his own.
Despite the fact that he could probably do the work of two ordinary people, he kept playing basketball and hiring people.
Let's see if this was a good decision.
There is an advantage to playing basketball and moving furniture.
An absolute advantage doesn't mean that he should do both tasks himself.
He could have asked for a few days to pack up and move, but he wouldn't have been able to work with his new team.
When you are paid millions of dollars to play a game, the time spent moving is time lost practicing or playing basketball, which incurs a substantial opportunity cost.
Imagine that you are going to visit your family in Chicago.
You can either take a train or plane.
Learning to value time is the key to answering the question.
The easiest way to calculate the cost savings of taking the train is to compare it with the time saved on the plane.
A person who takes the train can save $100, but it will take 20 hours to do so.
The savings would be at an hourly rate of $5 per hour.
You will be indifferent between plane and train travel if you value your time at $5 an hour.
You should take the plane if your time is worth more than $5 an hour.
You should take the train if your time is worth less than $5 an hour.
This approach to calculating opportunity cost gives us a more realistic answer than simply observing ticket prices.
Business travelers use opportunity cost to save time.
Good economists will look at the full opportunity cost of their decisions, which includes both the financials and the cost of time.
We did not discuss any of the possible side issues such as the fear of flying, sleeping arrangements on the train, or anything else that might be relevant to someone making the decision.
Saving one life doesn't mean sacrificing another.
All three of Ryan's brothers are dead.
The army rationalizes the decision to try to save Private Ryan.
A patrol led by Captain Miller loses many good men up being the lives that the patrol loses-- lives that in the process, and those who remain begin to doubt otherwise could have been pursuing a strategic mili the mission.
The sergeant was told to tary objective by Captain Miller.
"This Ryan better be worth it" is what the entire film is about.
He needs to go home and pay the opportunity cost.
We were living in the moment when we looked at our wings- pizza or short- term wants.
The short society as a whole must weigh the benefits available today against those available tomorrow.
Consumers can adjust their behavior in the short run.
Consumers have time to wants and limitations to fully adjust to market conditions in the long run.
Life's important decisions are about the long run.
Consumers have time to fully adjust to market where to live, who to marry, and where to go.
It is necessary to give up something you want to buy today in order to have more money available in the future.
We make decisions that reflect this tension between today and tomorrow, such as eating a large piece of cake, taking a nap, buying a jet ski or purchasing stocks in the stock market.
The decisions are made between the present and the future.
The trade off between the present and the future is evident in the tension between what we consume now and what we plan to consume later.
These goods help us meet our needs.
Capital goods are everywhere.
Capital goods include roads, factories, trucks, and computers.
Capital is a form of education.
Every investment in capi tal goods has an opportunity cost because of the scarcity of resources.
You can't use the money to travel to Study now if you buy a new laptop.
A firm that decides to invest in a new factory to expand future production is unable to use the money to hire more workers now.
Economic growth depends on the decision between consuming or investing.
When a society chooses point A in the short run, very few capital goods are created.
Capital goods are needed to enhance future growth, which is why the PPF2 expands slightly.
They have a choice about what to do next.
His partners are skeptical.
None of the three have any money.
The five silver coins are not very good with the lance.
For them to win more tournaments, they will have to invest a lot of money in training and if they can compete at the highest level.
Investing now will allow them to make consumer goods in the short run and invest in production possibilities that will allow them to make capital goods in the long run.
Each of them will have a better life in the long run because of the peasants' choice.
The long- run production possibilities curve only expands a small amount because new capital is a necessary ingredient for economic growth in the future.
The long- run production possibilities curve expands with investment in new capital.
The trade off is between spending today and investing tomorrow.
Emerging global economic powers like China and India are investing in the future.
The citizens of these countries have invested more in capital goods over the last 20 years than their counterparts in North America and Europe.
China and India have higher economic growth rates than other countries.
Your friend is fond of saying he will study later.
He often doesn't get the grades he wanted because he doesn't study enough.
Your friend doesn't understand long- run trade- offs.
You can start by reminding him that each decision has consequences at the margin and later in life.
Your friend's reasoning is correct.
It's almost irrelevant how well he does on one exam over four years.
Many poor exam scores have a cumulative effect on the semester.
At this stage of economic development, China prefers point B, but point B is not necessarily better than point A.
Many developed countries, such as the United States, take a more balanced approach to weighing current needs against future growth, as China is sacrificing the present for a better future.
Chinese workers typically work longer hours and have higher savings rates than their U.S. counterparts.
The U.S. workers have more leisure time and disposable income that leads to higher rates of consumption.
You know the answer after reading this chapter.
There is a misconception that every trade results in a winner and a loser.
The production possibilities tier is the first model we have developed.
The benefits of trade and ways to grow the economy are shown in this model.
When producers specialize, they focus their efforts on those goods and services for which they have the lowest opportunity cost and trade with others who are good at making something else.
Each producer must find its comparative advantage to have something valuable to trade.
We will look at the supply and demand model in the next chapter.
The model is different, but the result is the same.
The A380 can hold more than 800 observations.
The economy is influenced by the world potential market for copying cal change.
There is no reason anyone would want to pay less than $100.
Over 80% of American households have a new technology that would affect their computer use.
Future versions of new products will be substantially better according to a Boeing engineer in 1933.
Economists use real data to test their hypotheses.
The world around us is in the economist's laboratory.
A good model should be easy to use.
A model is harder to understand when it involves many variables.
Maintaining a positive framework is important for economic analysis because it allows decision makers to observe the facts objectively.
A production possibilities frontier is a model that shows the combinations of outputs that a society can produce if all of its resources are being used efficiently.
When resources are fully utilized and potential output is maximized, an outcome is efficient.
The PPF can be used to illustrate trade- offs and to explain opportunity costs and the role of additional resources and technology in creating economic growth.
Society is better off if individuals and firms specialize and trade on the basis of comparative advantage.
Parties that are better at producing goods and services than their potential trading partners still benefit from trade.
They can trade what they produce for other goods and services that they are less skilled at making.
All societies face a trade off between consumption and economic growth.
Capital goods help spur economic growth.
Because capital goods are not consumed in the short run, society must be willing to sacrifice how well it lives today in order to have more later.
A production possibilities frontier curve can be drawn.
This would be the case if you gave an example of two goods.
The two men might specialize in Italy.
They are artists.
The productive artist should be Michael.
According to the table, a student can make 6 sculptures a day but only make 2 paintings for the exams.
Defend your answer.
My dog is 75 pounds.
You should take your dog for a checkup every year.
Dogs are cuter than chihuahuas.
It's a good idea to have leash laws for dogs.
They reduce injuries.
How do you decide to invest in a college?
You can make a pie with pro bread for 4 hours.
There is a comparative advantage in the production of potatoes.
A politician will tell you about an apple pie.
What range of ratios for solar power and wind power are available if Joey and Rachel decide to build more production facilities and specialize in production.
If you wanted to work on a production concert, where would you go?
You can't see both in the same evening.
Everyone pitches in and works love Taylor Swift and would pay more for it than usual.
$200 is spent to see her perform.
A friend has just offered you a free ticket to read the poem "The Road Not Taken" by Rob.
2:1 and 10:5 are the same ratio.
3 sculptures for each painting is the opportunity cost for Angelo.
He can make 6 sculptures if he devotes all of his time to them.
The ratio is the same as 3:1.
We need to compare Michael's and Angelo's strengths.
It is not a straight line.
The student's is the low-opportunity- cost producer of grade in history, falling from 96 to 76 in history.
Normative Angelo should sculpt.
If Angelo does the sculptures, Michael will shift the entire PPF out along the concentrate on the paintings.
This is not the carrot axis.
If you go to the Maroon 5 you can use the land to produce carrots, but you would have to give up planting potatoes.
If you want to see Taylor Swift at a concert, you'll have to pay a fee, but if you want to see the Maroon 5 at a concert, you'll only have to pay a fee.
If you pay for the ticket, Rachel will give you 2 pies for every loaf.
Joey gives up 1 pie for every loaf.
The amount is $65.
The ticket for Joey is free.
You will get pies if Joey makes bread and Rachel the 5 concert is worth more than $65.
Rachel makes 2 pies per loaf and Joey makes 1 5 pies per loaf.
The opportunity cost of using would benefit them both.
Many students try to understand economics without learning how to read graphs.
The approach is shortsighted.
You can think your way to the correct answer in a few cases, but the models we build and illustrate with graphs are designed to help analyze the tough questions, where your intuition can lead you astray.
Economics is a science.
Calculating a numerical answer is how economists solve problems.
Calculating the unemployment rate, the inflation rate, the growth rate of the economy, prices, costs, and much more is done by economists.
Economists like to compare numbers from the past and the present.
Data-driven topics like financial trends, transactions, the stock market, and other business related variables lend themselves to graphic display throughout your study of economics.
Many theoretical concepts are easier to understand when depicted in graphs and charts.
Graphing can be used to find relationships between different sets of observations.
The production possibilities frontier model presented in this chapter involves the relationship between the production of pizza and chicken wings.
The trade off between pizza and wings is much more vivid thanks to the graphical presentations.
We begin with simple graphs involving a single variable.
We move to graphs with two variables.
Bar graphs and pie charts are the two most common ways to display data.
Coca- Cola Co. has the largest market share.
Each firm has a bar that represents its market share percentage.
The market share of the other firms is 12%.
The data from the beverage industry is shown on a pie chart.
The pie slice is the size of the market share.
Pie charts are generally better for showing proportions than bar graphs.
A time- series graph shows information about a variable.
If you want to show how the inflation rate has changed over time, you can either list the annual inflation rates in a lengthy table or show each point in a graph.
It is possible to quickly determine when inflation was highest and lowest with the help of graphs.
Understanding graphs requires you to see the relationships between economic variables.
Each variable is plotted on a grid.
The coordinate system allows us to show how the two variables relate to each other.
When the temperature is that low, no one will buy lemonade.
The amount of lemonade sold is 30 cups by the time we reach point C. 60 cups of lemonade are sold after the temperature reached 90 degrees.
If we graph the same direction.
The coordinate system makes it easy to observe positive and negative correlations, as economists are interested in using models and graphs to make predictions and test theories.
There is a difference between a positive correlation and a negative correlation.
The quantity of lemonade sold increases when the temperature increases.
The quantity of hot chocolate sold increases as the temperature increases.
There is a correlation between lemonade sales and higher temperatures.
Hot chocolate sales fall to 30 cups when the temperature rises to 50 degrees.
The temperature is 70 degrees and hot chocolate sales are down to 10 cups.
The negative correlation between hot chocolate sales and temperature is shown by the purple line connecting points E- H.
A slope can have either positive or negative values.
The slope shows us how responsive consumers are to temperature changes.
lemonade customers are not very responsive as the temperature rises from 0 to 50 degrees, because zero indicates no change and 0.2 is close to zero.
They are more responsive when the temperature rises from 70 to 90 degrees.
The slope has risen from 30 to 60 cups.
The positive relationship's strength is stronger and the curve is more vertical.
The movement from point A to point B is different than the movement from point A to point B.
The same analysis can be applied to Figure 2A.6b.
As the temperature rose from 32 degrees to 50 degrees, hot chocolate customers responded by cutting their consumption by 30 cups.
Hot chocolate customers are not very responsive from point G to point H, where the temperature goes from 70 to 100degF.
The slope is -0.3 and the consumption fell from 10 cups to 0 cups.
The line is flatter or more horizontal because of the weaker strength of the negative relationship.
There is a difference between the movement from point E to point F and the movement from point F to point E.
Economists look at the area of different sections below a curve in graphs.
Figure 2A.7 shows the demand for Bruegger's bagels.
When the price of bagels goes down, consumers will buy more bagels.
The revenue the seller receives is one of the most important considerations for the firm.
Let's assume that Bruegger's sells 4,000 bagels a week and the price of each bagel is $0.
The total amount of Bruegger's revenue can be shown by shading the area by the number of sales and price.
The blue triangle shows the surplus benefit consumers receive from buying bagels.
We can see the "surplus" that consumers get from Bruegger's Bagels by highlighting the blue triangular area under the demand curve and above the price of $0.60, because many buyers are willing to pay more than $0.60 per bagel.
There is a total revenue of $6,000.
The area of the green rectangle can be determined by taking the height and dividing it by the base.
There is a consumer surplus.
An important part of the relationship was left out.
There is a relationship between lemonade sales and bottles of suntan lotion.
Figure 2A.8 shows a graph of the two variables.
The graph is deceptive when you stop to think about the relationship.
The graph shows a correlation between the number of bottles of suntan lotion sold and the amount of lemonade sold.
We associate lemonade and suntan lotion with summer activities.
Variable influences are not caused by using more suntan lotion.
When it is hot outside, more suntan lotion is used and more lemonade is consumed.
The graph makes it look like the number of people using suntan lotion affects the amount of lemonade being consumed, when in fact the two variables are not directly related.
Suppose that a research organization notes the events of an assigned effort to fight the AIDS epidemic in Africa.
As the number of doctors goes up, so do the death rates from AIDS.
The research organization puts out a press release that claims doctors are to blame for the increase in AIDS deaths.
It's possible that more doctors are needed in areas with high incidences of AIDS.
We need to do more than just look at the correlation to come to the correct conclusion.
The value of quantity demanded of apples is calculated in the following graph.
The data in the table can be plotted into a $20 graph.