ECON_102_CH2

# ECON_102_CH2 - 21 CHAPTER2 TheEconomicProblem Ultimately, t

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2-1 CHAPTER 2 The Economic Problem All economies focus on two things: Production and Consumption Ultimately, the level of production will determine the level of consumption Production Possibilities Frontier: All possible combinations of outputs that can be produced with given inputs and  technology Question: What is another name for inputs? Factors of production Diagram of the Production Possibilities Frontier

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2-2 Economic Efficiency:  society getting the most it can from scarce resources.  Sometimes in an economy the goals of equity and efficiency conflict Equity:  Society trying to achieve an equal distribution of income for all
2-3 Attainable Versus the Unattainable Region Label the Attainable Region:   Under the  curve Label the Unattainable Region: Outside (excluding “C”) **trade or the economy growing can allow to  attain production at point “C”

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2-4  Inefficient Points What is the opportunity cost of moving from point E to X(directly  horizontal to E on the PPF)? There is no opportunity cost What is the opportunity cost of moving from point A to D(or the  first 6 pizzas of this economy)? 5 CD’s
2-5 Characteristics 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 cost of producing one more unit of the food on the x-axis There are many possible efficient points Slope of the PPF o Exercise:   o Calculate the slope of the PPF below and indicate the opportunity cost of  producing one more unit of Good X Answer : It would be 2 units of Good Y Good Y Good X a b 10 8 20 3 0

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