ch03lectureS - The Economic Problem CHAPTER 3 CHAPTER...

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The Economic Problem CHAPTER 3
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C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Explain and illustrate the concepts of scarcity, production efficiency, and tradeoff using the production possibilities frontier. 2 Calculate opportunity cost. 3 Explain what makes production possibilities expand. 4 Explain how people gain from specialization and trade.
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3.1 PRODUCTION POSSIBILITIES Production Possibilities Frontier Production possibilities frontier The boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology. The PPF is a valuable tool for illustrating the effects of scarcity and its consequences.
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Figure 3.1 shows the PPF for cell phones and DVDs. Each point on the graph represents a column of the table. The line through the points is the PPF . 3.1 PRODUCTION POSSIBILITIES
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3.1 PRODUCTION POSSIBILITIES The PPF puts three features of production possibilities in sharp focus: Attainable and unattainable combinations Efficient and inefficient production Tradeoffs and free lunches
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3.1 PRODUCTION POSSIBILITIES Attainable and Unattainable Combinations Because the PPF shows the limits to production, it separates attainable combinations from unattainable ones. Figure 3.2 on the next slide illustrates the attainable and unattainable combinations.
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The PPF separates attainable combinations from unattainable combinations. We cannot produce at any point outside the PPF such as point G . We can produce at any point inside the PPF or on the frontier. 3.1 PRODUCTION POSSIBILITIES
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3.1 PRODUCTION POSSIBILITIES Efficient and Inefficient Production Production efficiency is a situation in which we cannot produce more of one good or service without producing less of something else.
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