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Lecture 1

ECON 1000 Lecture Notes - Lecture 1: Ceteris Paribus, Opportunity Cost, Capital Accumulation

Course Code
ECON 1000
Sadia Mariam Malik

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Chapter 2
The Production possibilities frontier (PPF) is a model which shows the possible combinations of two
goods that can be produced given the resources available
It illustrates many of the important economic concepts of scarcity, opportunity cost, trade-offs,
and production efficiency
oProduction efficiency – when goods are produced at the lowest possible cost
I.e. society is getting the most of its given resources (using all available)
In scenarios of production efficiency, increased production of one good cannot
occur without decreased production of the other (i.e. trade-off)
2 assumptions:
oThere are only two goods produced by the economy
oThe two goods can change, but everything else, including resources, remains the same
(ceteris paribus)
Any point along the frontier (e.g. A) is an attainable combination of goods and illustrates production
efficiency (use of all resources)
Any point inside the frontier (e.g. B) is an attainable combination of goods and illustrates production
inefficiency (non-use of all resources)
Any point outside the frontier (e.g. C) is an unattainable combination of goods with the given resources
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