ECO 1104 Lecture 2: Chapter 2 (Cristina Blanco Perez)

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: Cristina Blanco- Perez

Document Summary

The invisible hand: people coordinate production activities to give consumers what they want. Global production is a natural outcome of people everywhere acting in their own self-interest to improve their own lives. This coordination mechanism is called the invisible hand. Production possibilities model: analyzes the production possibilities of an individual or country. Production possibilities frontier (ppf) : a line or curve that shows all the possible combinations of two outputs that can be produced using all available resources. Production possibilities model: two groups: producers and consumers. Shirt factories: each worker produces 1 shirt a day. Wheat farms: each worker produces 2 bushels of wheat per day. Calculating opportunity cost: it is the trade off between producing more of one good and less of another. It is equal to the slope of the ppf. (y2-y1) / (x2-x1) The opportunity cost of 1 shirt is 2 bushels of wheat.