Economic Problem, Ch. 2

Economic Problem, Ch. 2 - Economic Problem, ch. 2 I....

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Economic Problem, ch. 2 I. Production Possibilities and Opportunity Cost 1. Quantities of goods and services that we produce limited by resources and technology 2. Production possibility frontier (PPF) a. Boundary between those combinations of goods and services that can be produced and those that cannot b. Production Possibilities Frontier 1. Illustrates scarcity because we cannot obtain points outside frontier, Y 2. Can produce points inside, X, and on curve A,B,C c. Production Efficiency 1. Economy cannot produce more of one good without producing less of something else 2. Point on the curve 3. Point inside, inefficient because some unused resources or misallocated resources 4. Misallocated a. Resources that are assigned to tasks which not the best match d. Tradeoff Along PPF 1. Every choice on PPF is tradeoff 2. Fixed amount of labor, land, capital and entrepreneurship 3. All tradeoffs involve opportunity cost e. Opportunity Cost 1. Highest-valued alternative ii. Opportunity Cost is a Ratio
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This note was uploaded on 05/06/2009 for the course MGMT 25100 taught by Professor Blanchard during the Spring '09 term at Purdue University.

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Economic Problem, Ch. 2 - Economic Problem, ch. 2 I....

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