Chapter 2 notes - SCARCITY If a good is scarce relative to...

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SCARCITY If a good is scarce relative to the desire to own it or use it, choices must be made. This is true even if no shortage exists. Economic goods are scarce goods for which the desire to own or use them exceeds their availability at a price of zero. Some examples are: Cars, DIamonds Goods are things that satisfy needs or wants. All economic goods are goods, but not all goods are economic goods. Air is an example of a good that is probably not an economic good. People have essentially unlimited wants, particularly if we include ending world hunger, improved national defense, and space travel and exploration, wants are unlimited. Three fundamental questions each economy must answer: (1) What to produce, (2) for whom to produce, and (3) how to produce to satisfy some wants. FACTORS OF PRODUCTION Land includes water, soil, air, plants, and animals Labor human work Capitol divided into physical capital incl. machinery, factories, computers and human capital incl. knowledge and training, education Consider an auto manufacturer with maximum daily production combinations SUVs (1,000s) Sedans (1,000s) 10 0 8 4 6 8 4 12 2 16 0 20 PRODUCTION POSSIBILITIES FRONTIER (PPF) OR CURVE (PPC) Shows the combinations of maximum total output that could be produced assuming (1) a given time period, (2) fixed technology, (3) a fixed amount of resources, and (4) efficient use of resources.
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Plot the points above in a PPF diagram with SUVs on the vertical axis and sedans on the horizontal axis. Use the data and your diagram to answer the questions below.
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This note was uploaded on 04/02/2008 for the course ECON 2105 taught by Professor Rudbeck during the Spring '08 term at University of Georgia Athens.

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Chapter 2 notes - SCARCITY If a good is scarce relative to...

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