Chapter 3: Scarcity, Tradeoffs, and Production Possibilities
1. You can show students that the prototypical ly American, who complains that they don t do it like
back home when they travel, is someone who fails to recognize that there isn t a single right way (the
2. In talking about the economic questions all societies face, emphasize that the various answers are
interdependent. For example, what gets produced is not independent of who gets what, because the
who gets what answer determines the incentives facing producers.
3. The circular flow model is primarily designed to remind students that in the economy as a whole–the
4. It is often worth reinforcing the point that the production possibilities curve does not establish the
efficient solution for an economy, which also depends on preferences. One way to do it is draw a
5. You can introduce issues of institutional reform and how it can shift the effective production
possibilities curve of a society by giving examples of how rulers can benefit themselves in ways that
reduce total societal output (e.g., the selling of monopoly privileges), then asking students both whether
they can think of other examples of such policies (e.g., protectionist policies) and what would happen to
potential output in such a society if those inefficient policies were ended.
6. A useful way to liven up the consumption versus investment production possibilities curve discussion
7. In a reference ahead to Chapter 20 (Economic Growth in the Global Economy), it may be worth
reinforcing the point that even though higher rates of investment can make an economy s production
8. Emphasize to students that when we talk about inefficiently unemployed resources, we don t take
complete and continuous use of every resource as the standard. For instance, most farm equipment is
9. Since this chapter emphasizes efficiency issues, it is helpful to student comprehension to show them
that the (first part of the) right answer to any general efficiency question is “it depends,” but that the
crucial analytical questions pertain to what it depends on and how importantly it depends on each of the
10. Another way to make the point that the most efficient way to produce varies with circumstances is to
compare different countries. For example, fireplaces were once used to heat homes in the U.S. at the
11. There are several examples of seemingly inefficient behavior that students would recognize which
can be used to make efficiency issues clearer to them. They include such things as students taking
textbooks home for the holidays when they often don t read them (which looks like incurring the cost of
taking books back and forth for no benefit, but can be seen as efficient insurance against Mom imposing
on you to help clean the house or go to a family get-together you would rather avoid); senioritis (which
can be viewed as an efficient response to end of period incentives students face as the end of their
senior year approaches); procrastination (which, by making it obvious you couldn t possibly handle
anything more, reduces how much work you have to do by imposing it on others); strategic inefficiency
(being obviously incompetent at some task, like doing laundry, as a way to avoid being required to do it);
etc.
12. Another good classroom example of efficiency (and a tie to the later discussion of the search cost
rationale for frictional unemployment) is to suggest to students that it might be more efficient to fall in love
13. It can be worth expanding the labor as human capital discussion to show that investment principles