ECON_102_CH2

ECON_102_CH2 - 2-1CHAPTER 2The Economic ProblemAll...

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Unformatted text preview: 2-1CHAPTER 2The Economic ProblemAll economies focus on two things:•Production and Consumption•Ultimately, the level of production will determine the level of consumptionProduction Possibilities Frontier:•All possible combinations of outputs that can be produced with given inputs and technologyQuestion: What is another name for inputs?•Factors of productionDiagram of the Production Possibilities Frontier2-2Economic Efficiency: society getting the most it can from scarce resources. Sometimes in an economy the goals of equity and efficiency conflictEquity: Society trying to achieve an equal distribution of income for all2-3Attainable Versus the Unattainable RegionLabel the Attainable Region: Under the curveLabel the Unattainable Region:Outside (excluding “C”)**trade or the economy growing can allow to attain production at point “C”2-4 Inefficient PointsWhat is the opportunity cost of moving from point E to X(directly horizontal to E on the PPF)?There is no opportunity costWhat is the opportunity cost of moving from point A to D(or the first 6 pizzas of this economy)?5 CD’s2-5Characteristics of the Production Possibilities Frontier (PPF)•Downward sloping•Points outside the PPF are currently unattainable•Points on and inside the PPF are attainable•Points inside the PPF are inefficient•Points on the PPF are efficient•The slope of the PPF gives the opportunity costof producing one more unit of the food on the x-axis•There are many possible efficient pointsSlope of the PPFoExercise: oCalculate the slope of the PPF below and indicate the opportunity cost of producing one more unit of Good XAnswer: It would be 2 units of Good YGood YGood Xab1082032-6...
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This note was uploaded on 10/12/2011 for the course ECON 102 taught by Professor ? during the Spring '08 term at Waterloo.

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ECON_102_CH2 - 2-1CHAPTER 2The Economic ProblemAll...

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