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(Jan. 11) Chapter 2: The Economic Problem - Coggle Diagram
(Jan. 11) Chapter 2: The Economic Problem
the problem: a conflict between what we want, and the limited resources (such as income, or labour)
how to make the best choice out of what we have, while trying to satisfy desires; maximizing
individual's economic problem
for example, you have a $120 amazon gift card
suppose you can only buy movies and books
movies - $20
books $10
what are your purchase options?
if you only buy movies;
you can buy 6 movies, 0 books
120+0=120
if you buy 5 movies, you can buy 2 books
100+20
if you buy 4 movies sand 4 books
80+40
if you buy 3 movies, and 6 books
60+60
if you buy 2 movies and 8 books
40+80
if you buy 1 movie and 10 books
20+100
if you buy only books, you can buy 12 books
0+120
list all possible combinations
when graphing, only plot the x and y intercepts
the straight line mentions even "fraction" combinations
all points on the line are "attainable" (because it's within your budget)
so all points that are NOT on the line, are unattainable
vertical intercept can be found by taking the money you have, divided by the the price of the object
120/20
horizontal intercept can be found by dividing the budget by the price of the other object
120/10
slope of the budget line is the relative price of the
x axis, to the y axis
-10/20 = -1/2
x/y
slope represents the
opportunity cost
of books to movies?
"to gain 2 books, I need to lose 1 movie"
mentioning "2 books" because you can't "lose 1/2" a movie; it just doesn't make sense
so to write it in a way that makes sense and is realistic, you start with mentioning 2 books, then you mention losing half the number of books as movies
if purchasing 2 books:
1 more item...
also represents the relativity of the two objects?
slope = -1/2
if a slope is constant (linear), then the opportunity cost is constant; the same
note: not all graphs will be linear, so the opportunity cost will differ throughout the graph
in this case, the relative price of
books
to
movies
society's economic problem