3_PPF - Economic Problem and the PPF CHAPTER 3 CHECKLIST...

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Economic Problem and the PPF CHAPTER 3
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When you have completed your study of this chapter, you will be able to C H E C K L I S T Use the production possibilities frontier to illustrate the economic problem. 1 Calculate opportunity cost. Define efficiency and describe an efficient use of resources. Explain what makes production possibilities expand. 2 3 4
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3.1 PRODUCTION POSSIBILITIES Production Possibilities Frontier Production possibilities frontier The boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.
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Figure 3.1 shows the PPF for bottled water and CDs. The line through the points is the PPF . 3.1 PRODUCTION POSSIBILITIES
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3.1 PRODUCTION POSSIBILITIES The PPF puts three features of production possibilities in sharp focus: Attainable and unattainable combinations Efficient and inefficient production Tradeoffs and free lunches
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Points outside the PPF such as point G are unattainable. We can produce at any point inside the PPF or on the frontier. 3.1 PRODUCTION POSSIBILITIES Attainable and unattainable combinations
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1. When production is on the PPF , such as at point E or D , production is efficient.
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