Economics Unit 1 Individual Business Government Choices Lesson
Economics Unit 1: Individual, Business, & Government Choices Lesson 4: PPC & Utility
Scarcity, Choices, & Opportunity Costs: Modeling the Possibilities • Production possibilities curve or PPC is a model used by economists to illustrate the impact of scarcity on an economy • Looks at choices that a business or society must face in choosing what to produce with limited resources
Assumptions Behind the PPC 1 Resources are fixed – can’t increase land, labor, capital, or entrepreneurship 2 All resources are fully employed – economy is running at full production 3 Only 2 things can be produced 4 Technology is fixed
Trucks vs. TV’s Fig. 1. 2 on page 15 All resources into trucks = 4000/week All resources into TV’s = 10000/week PPC is not a straight line due to opportunity cost of each choice • Different cost of each good • •
Purpose’s of PPC’s 1 Shows how scarcity affects the production possibilites 2 Shows the trade-offs required by any specific choice – more TV’s = less trucks 3 Shows the opportunity cost of each choice
Utility • Utility is the satisfaction one gets from the use of a good or service • Total utility = maximum satisfaction possible • Ex. Burrito – hungry or not hungry
Economizing • Choosing to lower anticipated costs & increase anticipated benefits • Compare costs & benefits to make best choice based on info available • Quick decisions vs. longer decisions • Ex. Job offer vs. picking a college • No clear cut answers – depends on individuals value
Studying Alternatives • Fig. 2. 1 Choosing a Technical School • If paying a low tuition is important, which school might be eliminated first? • What benefits & potential benefits is Mariah giving up if she chooses the least expensive program?
Marginal Choosing • Choices are made based on one’s prior experience & changing expectations • Marginal utility is the additional benefit from consuming a successive amount of something in a given time period – Ex. Burritos • Law of diminishing marginal utility – benefit from using each additional unit of something will decline as each is used
- Slides: 9