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EC1021 Sept 18

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Economics 1021A/B
Bruce Hammond

Chapter 2 Production Possibilities and Opportunity Cost – Every working day on worksites in Canada, 17 mil. People produce goods and services valued at $5 billion. – Limited by available resources and technology. – If we want to increase production of one thing, we have to limit production of something else (tradeoff) Production possibilities frontier – the boundary between those combinations of goods and services that can and cannot be produced. Example: pizza and cola Production efficiency – achieved if we produce goods and services at the lowest possible cost. Occurs at all points on the PPF. Insufficient production on points inside the PPF because we are giving up more than necessary of one good to produce a certain quality of the other good. Point Z on graph – 3 million pizzas, 5 million cans of cola, but have enough resources to produce 3 million pizzas and 9 million cans of cola. Pizzas cost more cola than necessary – we can get them for a lower cost. – Only when one produces on the PPF can they get the lowest possible cost of production. Production is inefficient inside because resources are either unused or misallocated or both unused when they could be working – Example: we may leave some factories idle or some workers unemployed. – Misallocated when they are assigned to tasks for which they are not the best match. Example: assigning pizza chefs to work in a cola factory and cola producers to work in a pizza shop. Get more of each if we assign them to tasks matching their skills. Every choice on the PPF involves a tradeoff Example: when Parliament want
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