Chapter 2

Chapter 2 - Chapter Two Economic Activities Producing and...

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Chapter Two – Economic Activities: Producing and Trading PPF = Production possibilities frontier - Represents the combination of two goods that can be produced in a certain period of time under conditions of a given state of technology and fully employs resources - Shape of PPF depends on whether the opportunity costs are constant or increase as more of a good is produced o Straight line PPF = Constant opportunity costs o Bowed-outward PPF = increasing opportunity costs Most production possibilities are bowed-outward Law of increasing opportunity costs = for most goods, the opportunity costs increase as more of the good is produced - Because people have varying abilities PPF separates production possibilities of an economy into two regions: - 1 – an attainable region o Consists of points on the PPF and below it - 2 – an unattainable region o Consists of points above and beyond the PPF Productive efficient = producing the maximum output with given resources and technology - Lies on PPF line - No unemployed resources Productive inefficient = producing less than the maximum output with given resources and technology - Lies below the PPF line - Implies that gains are possible in one area without losses in another
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Economic Growth = increased productive capabilities of an economy - Effected by: o
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Chapter 2 - Chapter Two Economic Activities Producing and...

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