Chapter%202%20PPT%20Student[1]

Chapter%202%20PPT%20Student[1] - Chapter 2 Trade-offs,...

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Chapter 2 Trade-offs, Comparative Advantage, and the Market System
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Production Possibilities Frontiers (PPFs) PPF: A curve showing the maximum attainable combinations of two products that may be produced with: Example: A small country produces two goods: corn (measured in bushels) and trucks. Points on a production possibilities frontier can be shown in a table or a graph. A B C D E Trucks 0 10 20 30 40 Corn 70 60 45 25 0
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Corn Trucks
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Production is efficient at points on the curve. This implies that the economy is getting all it can from the scarce resources it has available. Production at a point inside the curve is inefficient . Production at a point outside of the curve is not possible given the economy’s current level of resources and technology. PPFs show the tradeoffs that society faces. These trade-offs are shown by the:
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The PPF shows the opportunity cost of producing each of the goods. The o.c. of 10 trucks between A and B (from 0 trucks to 10 trucks) is The o.c. of 10 trucks between B and C (from 10 trucks to 20 trucks) is The o.c. of 10 trucks between C and D (from 10 trucks to 20 trucks) is The o.c. of 10 trucks between D and E (from 10 trucks to 20 trucks) is Note that the opportunity cost of the good on the horizontal axis is shown by the
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With a PPF that is bowed outward from the origin (“concave”), what happens to the opportunity cost of trucks (in terms of corn) as the
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This note was uploaded on 11/15/2010 for the course ECON 203 taught by Professor Nelson during the Fall '08 term at Texas A&M.

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Chapter%202%20PPT%20Student[1] - Chapter 2 Trade-offs,...

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