Chapter 2—Economic Activities: Producing and Trading I. An Economy’s Production Possibilities Frontier (PPF) A. An economy’s production possibilities frontier (PPF) represents the possible combinations of two goods that the economy can produce in a certain period of time under the conditions of a given state of technology and fully employed resources. II. Increasing and Constant Opportunity Costs A. A straight-line PPF represents constant opportunity costs: increased production of one good comes at constant opportunity costs. B. A bowed-outward (concave-downward) PPF represents the law of increasing opportunity costs: increased production of one good comes at increased opportunity costs. III. The PPF and Various Economic Concepts A. The PPF can be used to illustrate various economic concepts. Scarcity is illustrated by the frontier itself. Choice is illustrated by our knowing that we have to locate at some particular point either on the frontier or below it. In short, of the many attainable positions, one must be chosen. Opportunity cost is illustrated by a movement from one point on the PPF to another point on the
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