Utility, Production, and Opportunity Cost: Economic Concepts, Lecture notes of Microeconomics

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MAXIMIZING UTILITY, PRODUCTION POSSIBILITIES AND OPPORTUNITY COST WEEK 2

OBJECTIVES

• (^) To define utility, marginal utility, opportunity cost, and other economic terminologies;
• (^) To explain the implication of available scarce resources including technology to production possibilities over a period of time;
• (^) To understand the need for sacrifice in order to have some opportunities to produce more items;
• (^) To understand the role of productive efficiency in economic growth;
• (^) To demonstrate the idea on the use of income over a period to buy more of one item, opportunity is sacrificed to buy other items;
• (^) To appreciate how international trade can help citizen’s consumption possibilities that exceed their nation’s domestic production possibilities.

Opportunity Cost

• (^) It is the value of the best alternative that you must forgo in order to make that choice.

Globalization: the Gains from International

Trade

• (^) International Trade
  • (^) It is the exchange of goods and services between countries.
  • (^) Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries or which would be more expensive domestically.
  • (^) The importance of international trade was recognized early on by political economists like Adam Smith and David Ricardo.
  • (^) There are some criticisms that international trade can be bad for smaller nations putting them at a greater disadvantage on the world stage.

What is an Absolute Advantage?

• (^) It is the ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time, or to produce the same quantity of a good or service per unit of time using a lesser quantity of inputs, than another entity that produces the same good or service.

What is Production?

• (^) It is a process that creates a product.
• (^) Product
  • (^) Is the outcome of production
  • (^) It is valuable commodity or service.
• (^) Factors of Production
  • (^) These are land, labor, capital, and enterprise
  • (^) These are used to convert raw materials into goods.