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Lecture

Chapter 2: The Economic Problem

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Department
Economics
Course
ECON 101
Professor
Fiona Rahman
Semester
Winter

Description
Chapter 2: The Economic Problem Production Possibilities - production possibilities frontier (PPF) is is the boundary between combinations of goods and/or services that can be produced and those that cannot (according to limited resources available) - put 2 goods against each other and hold other goods and services constant - so we only see how the 2 goods affect each other Understanding the PPF - production efficiency = resources are fully utilized = cannot produce one more good without sacrificing come of the other good - any point on or within the frontier is attainable/possible - any point within the frontier is production inefficient - any point on the frontier is production efficient - all other point (outside the frontier) is unattainable/impossible Opportunity Cost - switching between points on the PPF involves tradeoff, to give up some good in order to get more of the other - opportunity cost = amount of other good forgone to make more of the good we want = is the slope of the PPF = ratio of good forgone per/over one good produced - opportunity cost of A is the inverse of that of B (on a PPF where A is graphed against B) Increasing Opportunity Cost - resources are not equally productive ex. not all workers are equally fast at making pizzas - the less resources is given to produce one good, the higher the opportunity cost would be if we remove some of the resources to produce another good ex. take away good pizza makers to produce cola which they are not as good at making - therefore, the PPF is curved - we need to choose the point on the PPF (which is efficient) that is most allocative efficient - we look at marginal benefit and marginal cost Marginal Benefit - preference = description of person's likes and dislikes = the benefits to society from one more unit of a good = sum of benefit of that good to everyone = measured by how much people are willing to pay for the good Margi
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