Notes Aug. 31 - Microeconomics August 31 2009 Chapter 2 Hw...

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Microeconomics August 31 2009 Chapter 2 Hw #1 due Monday Sept. 14 The production possibility Frontier - Specific example showing opportunity cost and trade-offs. Production possibility frontier (ppf): A graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently. Notes: 1. Definition says society, but later will talk about the ppf of a person as well. 2. Assumes current resources and production technology fixed. Observations about ppf Points outside the ppf are unobtainable ceteris paribus Points inside the ppf are inefficient. Either not using all resources or using them in some inefficient way – book has more. Points on the ppf all places where to produce more of one good, must produce less of another: trade-offs. Could be efficient. Opportunity cost in ppf Assume we are starting at (1100,800). Call this point F When economy moves to point E, gain 200 consumer goods but lose 250 capital goods. Can say that the Opportunity cost of 200 consumer goods is 250 capital goods. That’s what economy had
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This note was uploaded on 08/24/2011 for the course ECO 304K taught by Professor Hickenbottom during the Fall '10 term at University of Texas.

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Notes Aug. 31 - Microeconomics August 31 2009 Chapter 2 Hw...

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