ECO182C - Chapter 2 Part 2

ECO182C - Chapter 2 Part 2 - Chapter 2, continued Homework...

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Homework Problems, Chapter 2 Page 51, Problems 1-7,12,13 Chapter 2, continued Scarcity, Choice, and Economic Systems Recap • Opportunity cost – next best alternative foregone • Economists include opportunity costs as a part of costs when doing a cost-benefit analysis • Study opportunity costs for society using a graph called Production Possibilities Frontier (PPF) – PPF is the maximum quantity of two goods which can be produced using all resources in economy – Point inside Æ attainable but inefficient – Points on the PPF Æ efficient and attainable – Points outside PPF Æ unattainable – Slope of PPF is negative gives the Opportunity cost of producing one good in terms of the other – Law of increasing opportunity cost causes the shape of PPF to be concave 23 24 Specialization and Exchange • Every economic system is characterized by two features – Specialization: Each of us focuses on a limited number of activities – Exchange: What we desire is obtained by trading with others • This helps us to attain greater production and higher standards of living Three reasons why we need to specialize (1) Human capabilities – People can learn only limited number of things in their
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ECO182C - Chapter 2 Part 2 - Chapter 2, continued Homework...

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