【正文】 nd Ability to Pay A demand curve is also a willingnessandabilitytopay curve. The smaller the quantity available, the higher is the price that someone is willing to pay for another unit. Willingness to pay measures marginal benefit. Demand 169。 2020 Pearson AddisonWesley Substitution Effect When the relative price (opportunity cost) of a good or service rises, people seek substitutes for it, so the quantity demanded of the good or service decreases. Ine Effect When the price of a good or service rises relative to ine, people cannot afford all the things they previously bought, so the quantity demanded of the good or service decreases. Demand 169。 2020 Pearson AddisonWesley A market is any arrangement that enables buyers and sellers to get information and do business with each other. A petitive market is a market that has many buyers and many sellers so no single buyer or seller can influence the price. The money price of a good is the amount of money needed to buy it. The relative price of a good—the ratio of its money price to the money price of the next best alternative good—is its opportunity cost. Market and Prices 169。 2020 Pearson AddisonWesley 169。 2020 Pearson AddisonWesley To reap the gains from trade, the choices of individuals must be coordinated. To make coordination work, four plimentary social institutions have evolved over the centuries: ? Firms ? Markets ? Property rights ? Money Economic Coordination 169。 2020 Pearson AddisonWesley Liz specializes in producing smoothies and produces 30 smoothies an hour at point B on her PPF. Gains from Trade 169。 2020 Pearson AddisonWesley Figure shows the gains from trade. Joe initially produces at point A on his PPF. Liz initially produces at point A on her PPF. Gains from Trade 169。 2020 Pearson AddisonWesley Joe’s Comparative Advantage Joe’s opportunity cost of a salad is 1/5 smoothie. Liz’s opportunity cost of a salad is 1 smoothie. Joe’s opportunity cost of a salad is less than Liz’s. So Joe has a parative advantage in producing salads. Gains from Trade 169。s opportunity cost of producing 1 smoothie is 5 salads. Joe39。s opportunity cost of producing 1 salad is 1 smoothie. Liz’s customers buy salads and smoothies in equal number, so she produces 15 smoothies and 15 salads an hour. Liz39。 2020 Pearson AddisonWesley The Cost of Economic Growth To use resources in research and development and to produce new capital, we must decrease our production of consumption goods and services. So economic growth is not free. The opportunity cost of economic growth is less current consumption. Economic Growth 169。 2020 Pearson AddisonWesley We get more value from our resources by producing more pizzas. On the PPF at point A, we are producing too few pizzas. We are better off moving along the PPF to produce more pizzas. If we produce fewer than million pizzas, marginal benefit exceeds marginal cost. Using Resources Efficiently 169。 2020 Pearson AddisonWesley At point E, with pizza million pizzas available, people are willing to pay 1 can of cola for a pizza. Using Resources Efficiently 169。 2020 Pearson AddisonWesley Preferences and Marginal Benefit Preferences are a description of a person’s likes and dislikes. To describe preferences, economists use the concepts of marginal benefit and the marginal benefit curve. The marginal benefit of a good or service is the benefit received from consuming one more unit of it. We measure marginal benefit by the amount that a person is willing to pay for an additional unit of a good or service. Using Resources Efficiently 169。 2020 Pearson AddisonWesley Increasing Opportunity Cost Because resources are not equally productive in all activities, the PPF bows outward. The outward bow of the PPF means that as the quantity produced of each good increases, so does its opportunity cost. Production Possibilities and Opportunity Cost 169。 2020 Pearson AddisonWesley Opportunity Cost As we move down along the PPF, we produce more pizzas, but the quantity of cola we can produce decreases. The opportunity cost of a pizza is the cola fone. Production Possibilities and Opportunity Cost 169。 2020 Pearson AddisonWesley Any point on the frontier such as E and any point inside the PPF such as Z are attainable. Points outside the PPF are unattainable. Production Possibilities and Opportunity Cost 169。 how we gain by trading with others。 2020 Pearson AddisonWesley Why does food cost much more today than it did a few years ago? One reason is that we now use part of our corn crop to produce ethanol, a clean biofuel substitute for gasoline. Another reason is that drought in some parts of the world has decreased global grain production. We use an economic model—the production possibilities frontier—to learn why ethanol production and drought have increased the cost of producing food. We also use this model to study how we can expand our production possibilities。 2020 Pearson AddisonWesley Production Possibilities Frontier Figure shows the PPF for two goods: cola and pizzas. Production Possibilities and Opportunity Cost 169。 2020 Pearson AddisonWesley Tradeoff Along the PPF Every choice along the PPF involves a tradeoff. On this PPF, we must give up some cola to get more pizzas or give up some pizzas to get more cola. Production Possibilities and Opportunity Cost 169。 2020 Pearson AddisonWesley Opportunity Cost Is a Ratio Note that the opportunity cost of a can of cola is the inverse of the opportunity cost of a pizza. One pizza costs 5 cans of cola. One can of cola costs 1/5 of a pizza. Production Possibilities and Opportunity Cost 169。 2020 Pearson AddisonWesley In part (b) of Fig. , the bars illu