Lecture B (WK1)

Lecture B (WK1) - Lecture B(WK1 Welcome Back Chapter 2 The...

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Lecture B (WK1) Welcome Back Chapter 2 – The Economic Problem: Scarcity and Choice This section of our course investigates three fundamental questions that every economy must answer : What gets produced? How is it produced? Who gets what is produced? The economic problem derives from these questions. Essentially it is universal condition that human wants are unlimited but resources are not. limited and scarce resources force individuals to choose among alternative uses for resources and also between varied outputs. The best alternative that we forgo with our choice is the opportunity cost of that decision. When considering an economy of two or more , the theory of comparative advantage applies: Absolute Advantage : A producer has an absolute advantage over another in the production of a good or service if it can product that good or service using fewer resources. Comparative advantage : A producer has a comparative advantage over another in the production of a good or service if it can produce at a lower opportunity cost. When addressing economic decisions, we can apply the production possibilities model that illustrates the choices that people make regarding which goods and services to produce and which to forgo. Each point on the production possibilities curve represents some maximum combination of two products that can be produced if resources are fully employed. When the economy is operating on the curve, more production of one product means that there will be less production of the other one. Limited resources and fixed technology make any point outside of the curve unattainable without Ron_Knapp_L1.doc
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growth in the economy. Economic Growth is an increase in the total output of an
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This note was uploaded on 06/15/2010 for the course EC 142DLB taught by Professor Graceonodipe during the Spring '10 term at Park.

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Lecture B (WK1) - Lecture B(WK1 Welcome Back Chapter 2 The...

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