Chapter 2: Production Possibilities, Opportunity Cost, and Economic
Growth
LEARNING OBJECTIVES
#1 - Define the three fundamental economic questions and opportunity cost.
Step 1
Read the sections in your textbook titled “The Three Fundamental Economic Questions”
and “Opportunity Cost.”
Step 2
Listen to the “Ask the Instructor Video Clip” titled “Why Do Language Teachers Earn
Less?” You will learn that opportunity cost applies to earnings differentials.
Step 3
Read the EconNews article titled “It’s Getting Too Expensive to Put People in Jail.”
This article describes the opportunity cost of fighting crime.
Step 4
Read the EconDebate titled “Does Public Investment in Municipal Stadiums Pay Off?”
This article describes how stadiums result in opportunity costs.
The Result
After following these steps, you have learned to understand that all nations must answer
three basic economic questions and give examples of opportunity cost.
#2 - Graphically express a production possibilities model and understand that it illustrates marginal
analysis, opportunity cost, production efficiency, and inefficiency.
Step 1
Read the sections in your textbook titled “Marginal Analysis,” “The Production
Possibilities Curve,” and “The Law of Increasing Opportunity Costs.”
Step 2
Watch the Graphing Workshop “See It!” tutorial titled “The Production Possibility.”
Study how the production possibilities curve is applied to health care using marginal
analysis and the law of increasing opportunity cost. Efficient and inefficient points are
also explained in this exercise.
Step 3
Listen to the “Ask the Instructor Video Clip” titled “Why Do Economists Emphasize
Marginal Analysis?” You will learn that marginal analysis is important in career
decisions or driving a car.
Step 4
Read the EconNews article titled “The Federal Budget: What a Difference a Day
Makes.” This article describes a production possibilities are relationship between
national defense and domestic programs.
The Result
After following these steps, you have learned to define marginal analysis and apply this
reasoning tool to the production possibilities curve model.
#3 - Use the production possibilities curve to understand economic growth.
Step 1
Read the sections in your textbook titled “Source of Economic Growth” and “Present
Investment and the Future Production Possibilities Curve.”
Step 2
Read the Graphing Workshop “Grasp It!” exercise titled “Production Possibilities.”
This exercise uses a slider bar to demonstrate economic growth based on the impact of
technological change on the production possibilities curve for computers and cars.
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Step 3
Create a new graph at the Graphing Workshop “Try It!” exercise titled “Production
Possibilities.” This exercise illustrates an outward shift in the production possibilities
curve.
Step 4
Play the “Causation Chains Game” titled “Economic Growth and Technology.”
Step 5
Listen to the “Ask the Instructor Video Clip” titled “Do Economists and the General
Public Attach Different Meanings to the Term Investment?” You will learn the
economist’s definition of investment versus the everyday use of this term.
Step 6
Read the Econ Debate article titled “Is There a New Economy?” This article describes
the issues and background for the “new economy.”
The Result
After following these steps, you have learned to explain economic growth in terms of an
outward shift in the production possibilities curve.
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