Microeconomics OpenStax Chapter 2 Self Check and Review

The opportunity cost of bus tickets is the number of burgers that must be given up to obtain one more
bus ticket. Originally, when the price of bus tickets was 50 cents per trip, this opportunity cost was 0.50/2 = .25 burgers. The reason for this is that at the original prices, one burger ($2) costs the same as four bus tickets ($0.50), so the opportunity cost of a burger is four bus tickets, and
the opportunity cost of a bus ticket is .25 (the inverse of the opportunity cost of a burger). With the new, higher price of bus tickets, the opportunity cost rises to $1/$2 or 0.50. You can see this graphically since the slope of the new budget constraint is flatter than the original one. If Alphonso spends all of his budget on burgers, the higher price of bus tickets has no impact so the horizontal
intercept of the budget constraint is the same. If he spends all of his budget on bus tickets, he can now afford only half as many, so the vertical intercept is half as much. In short, the budget constraint rotates clockwise around the horizontal intercept, flattening as it goes and the opportunity cost of bus tickets increases.

Because of the improvement in technology, the vertical intercept of the PPF would be at a higher level of healthcare. In other words, the PPF would rotate clockwise around the horizontal intercept. This would make the PPF steeper, corresponding to an increase in the opportunity cost of education, since resources devoted to education would now mean forgoing a greater quantity of healthcare.

No. Allocative efficiency requires productive efficiency, because it pertains to choices along the
production possibilities frontier.

Both the budget constraint and the PPF show the constraint that each operates under. Both show a tradeoff between having more of one good but less of the other. Both show the opportunity cost graphically as the slope of the constraint (budget or PPF).

When individuals compare cost per unit in the grocery store, or characteristics of one product versus another, they are behaving approximately like the model describes.

Since an op-ed makes a case for what should be, it is considered normative.

Assuming that the study is not taking an explicit position about whether soft drink consumption is
good or bad, but just reporting the science, it would be considered positive.

people must choose, they inevitably face tradeoffs in which they have to give up things they desire to get other things they desire more.

Individuals make decisions directly on the budget constraint because ones above are impossible and ones below are a waste of money.

Comparative advantage is when a country has lower opportunity cost to make an item than another country.

if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced

A PPF is typically drawn as a curve because it shows the trade-off between two resources and how large marginal growth isn't affected when taking a little away or adding a few

Societies cannot make choices about their PPF because it is impossible, and choosing below it is a waste of resources.

Law of diminishing returns holds that as additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments will
decline. When government spends a certain amount more on reducing crime, for example, the original gains in reducing crime could be relatively large. But additional increases typically cause relatively smaller reductions in crime, and paying for enough police and security to reduce crime to nothing at all would be tremendously expensive.

Productive efficiency is having to give something up in order to increase the other thing. Allocative efficiency is when the mix of goods/services line up with the desire of society

A positive statement describes how the world is and a normative statement describes how the world should be.

The economic model of decision-making isn't intended as a literal description of how things should make decisions

Why isn't everyone doing it?, What are the trade-offs?, What are the wants and constraints of those involved?, How will others respond?

Allocative efficiency is wasteful because although a good may be needed now and all the consumers who demand the good have been supplied, the cost of the good will go down in the future if everyone has their fill now and it is not in demand anymore. If everyone has been supplied, there could be no trading happening to benefit neither the consumer nor the producer (Pareto-optimal state).

Budget = P1 Q1+P2 Q2
where P and Q are the price and quantity of items purchased and budget is the amount of income one has to spend.

The law of diminishing returns holds that as additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments will decline. The curvature of the production possibilities frontier shows that as additional resources are added to education, moving from left to right along the horizontal axis, the original gains are fairly large, but gradually diminish. Similarly, as additional resource are added to healthcare, moving from bottom to top on the vertical axis, the original gains are fairly large, but again, gradually diminish. The law of diminishing returns produces the outward-bending shape of the product possibilities frontier.

Productive efficiency means that, given the available inputs and technology, it is impossible to produce more of one good without decreasing the quantity that is produced of another good.
Allocative efficiency means that the particular mix of goods a society produces represents the combination that society
most desires. How to determine what a society desires can be a controversial question, and is usually discussed in political science, sociology, and philosophy classes as well as in economics. At its most basic, allocative efficiency means producers supply the quantity of each product that consumers demand. Only one of the productively efficient choices will be the allocatively efficient choice for society as a whole.