Chapter 2 - Economics Chapter 2 Learning objectives 1 Use a...

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Economics Chapter 2 Learning objectives: 1. Use a production possibilities frontier to analyze opportunity costs and trade offs 2. Understand comparative advantage and explain how it is the basis for trade 3. Explain the basic idea of how a market system works Page 1 of 7 Mohammed Al Khalifa
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Economics Chapter 2 Production possibilities frontier A curve showing the maximum attainable combination of two products that may be produced with available resources BMW’s Production Possibilities Frontier BMW faces a trade off: To build one more roadster, it must build one less SUV. The production possibilities frontier illustrates the trade off BMW faces. Combinations on the production possibilities frontier, like points A,B,C,D, and E, are technically efficient because the maximum output is being obtained from the available resources. Combinations inside the frontier (Point F) are inefficient because some resources are not being used. Combinations outside the frontier (point G) are unattainable with current resources Page 2 of 7 Mohammed Al Khalifa
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Economics Chapter 2 Opportunity cost : Highest valued alternative that must be given up to engage in an activity Increasing Marginal Opportunity Costs As the economy moves down the production possibilities frontier, it
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