1.3: Opportunity cost

• Opportunity cost


  Cost of a decision in terms of the benefits of the next best alternative foregone
• PPF


  A model that shows the maximum potential output of two goods that can be produced in the current time period if all resources are efficiently employed
• Productive efficiency


  When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process
• Pareto efficiency


  When no reallocation of resources can make one individual better off without making some other individual worse off
• Point on the PPF

  Efficient
• Point below the PPF

  Inefficient
• Point above the PPF

  Currently unattainable
• Reallocation of resources on a PPF

  Movement along the PPF curve, goods that resources move from becomes the alternative foregone
• Upward shift of PPC


  Due to gaining more resources
• Downwards shift of PPF

  Reduction in resources
• Rightwards shift of only one type of good

  Increase of resources for only one sector