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Essential Questions for Rational decision-making
• Why should people weigh the advantages and disadvantages of different alternatives when making decisions?
• What does it mean to be rational?• What methods can we use to help us make
our choices more rationally?• How does self-interest influence human
decision-making?
Trade-offs
• Exchanging one thing for the use of another is called a trade-off
• Trade-offs involve opportunity costs, or the loss of one alternative when you choose another
• Opportunity cost by definition is the value of the next best choice
• Considering the opportunity cost can help people make decisions
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QuickTime™ and a decompressor
are needed to see this picture.
QuickTime™ and a decompressor
are needed to see this picture.
Production Possibilities Curve
• The production possibilities curve shows the maximum combination of goods and services that can be produced from a given amount of resources
• Using a PPC, a producer can decide best how to use resources.
The production possibility curve demonstrates that:
1. There is a limit to what you can achieve, given the existing institutions, resources, and technology.
2. Every choice you make has an opportunity cost. You can get more of something only by giving up something else.
Production Possibilities
• Graph #1• Draw a PPC that illustrates the
maximum combination of two goods.• Indicate on the graph a point of
inefficiency and label point “A”.• Indicate a point on the graph of a
production impossibility and label point “B”.
Production Possibilities
• Graph #2• Draw a PPC that illustrates the
maximum combination of two goods.• Label the PPC “PP1”.• Illustrate the shift that would occur in the
PP if a worldwide epidemic took place. • Label the new PPC “PP2”
Production Possibilities
• Graph #3• Draw a PPC that illustrates the
maximum combination of two goods.• Label the PPC “PP1”.• Illustrate the shift that would occur in the
PP if new innovations took place in the production of goods and services.
• Label the new PPC “PP2”
Production Possibilities
• Graph #4-6• Draw a PPC that illustrates the
maximum combination of two goods.• Label the PPC “PP1”.• Illustrate a shift either right or left and
provide an explanation that would cause the shift in the graph
• Label the new PPC “PP2”