Econ Notes chapter 2 - Econ Notes: Chapter 2: Trade-offs,...

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Econ Notes: Chapter 2: Trade-offs, Comparative Advantage, and the Market System Scarcity- requires trade-offs; scarcity exists b/c we have unlimited wants but only limited resources available to fulfill those wants (study or watch a movie?) o Economic resources, factors of production (workers, capital, natural resources ) Production Possibilities Frontier and Real-World Trade-offs Production Possibilities Frontier- a curve showing the maximum attainable combinations of two products that may be produced w/ available resources Efficiency happens when all available resources are being fully utilized; inefficiency happens when maximum output is not being obtained from the available resources If inside the frontier graph, variable considered attainable w/ resources available If the frontier is considered efficient, the variables fully utilize the resources (on the line) If outside the frontier, variable is considered inefficient b/c it doesn’t maximize output Opportunity cost- the highest-valued alternative that must be given up to engage in an activity Trade-offs and Tsunami relief Giving funds to victims of the tsunami relief meant fewer funds available to aid other causes Increasing Marginal Opportunity Cost As the economy moves down the production possibilities frontier, it experiences increasing marginal opportunity costs b/c increasing automobile production by a given quantity requires larger and larger decreases in tank production The more resources already devoted to any activity, the smaller the payoff to devoting additional resources to that activity. o
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This note was uploaded on 04/16/2008 for the course ECON 002 taught by Professor Mcleod,markpehlivan,ayseozg during the Spring '08 term at Pennsylvania State University, University Park.

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Econ Notes chapter 2 - Econ Notes: Chapter 2: Trade-offs,...

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