EC102-1ASPRING09B - PRINCIPLE # 1 PEOPLE FACE TRADE-OFFS...

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Chapter 2: The basic Economic Problem All Economies focus on 2 things: Production Consumption Production Possibilities Frontier: all combinations of output that can be produced with given inputs and technology Characteristics of the PPF 1. Downward sloping Necessity of tradeoff 2. Points on or inside the frontier are attainable 3. Points outside the frontier are unattainable. 4. Points on the PPF are efficient. 5. Points inside the PPF are inefficient. 6. The slope of the PPF represents opportunity cost. Specifically the slope represents the opportunity cost of producing one more unit of the good on the x-axis. 7. There are many possible efficient points The inverse of the slope represents the opportunity cost of producing 1 ore unit of Y. Efficiency: Society getting the most it can from its economic resources. 1-1
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1THE TEN PRINCIPLES OF ECONOMICS
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Unformatted text preview: PRINCIPLE # 1 PEOPLE FACE TRADE-OFFS 1-2 PRINCIPLE # 2 COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT Opportunity Cost: 1-3 PRINCIPLE # 3 o RATIONAL PEOPLE THINK AT THE MARGIN PRINCIPLE # 4 o PEOPLE RESPOND TO INCENTIVES 1-4 PRINCIPLE # 5 o TRADE CAN MAKE EVERYONE BETTER OFF 1-5 PRINCIPLE # 6 o MARKETS ARE USUALLY A GOOD WAY TO ORGANIZE ECONOMIC ACTIVITY 1-6 PRINCIPLE # 7 o GOVERNMENTS CAN SOMETIMES IMPROVE MARKET OUTCOMES 1-7 PRINCIPLE # 8 o A COUNTRYS STANDARD OF LIVING DEPENDS ON ITS ABILITY TO PRODUCE GOODS AND SERVICES 1-8 PRINCIPLE # 9 o PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY 1-9 PRINCIPLE # 10 o SOCIETY FACES A SHORT-RUN TRADE-OFF BETWEEN INFLATION AND UNEMPLOYMENT 1-10...
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EC102-1ASPRING09B - PRINCIPLE # 1 PEOPLE FACE TRADE-OFFS...

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