CH. 2 ECONOMIC PROBLEM LECTURE NOTES ECON
PRODUCTION POSSIBILITIES CURVE
- Out of the possibilities on the curve which is the best to choose?
- Only way to have more than one is taking away from other resources in the
- Opportunity cost to make more of one product becomes steeper and
increases as more of that one product is created.
- Preferences are a description of a persons likes and dislikes
- Marginal benefit is the amount of money willing to be paid by adding more
of that unit
- More we have of one good the smaller the marginal benefit… less we are
willing to pay for it
- Principle of Decreasing Marginal Benefit is illustrated by this.
- The Curve shows the relationship between marginal benefit and the
quantity of that consumed good.
- The marginal benefit curve is downward sloping (top left to bottom right)
because the marginal benefit decreases as more of that product is consumed
(I,e. water on a hot, sunny day)
- The willingness to pay decreases as you consume more.
- Allocative Efficiency: The optimal combination for two products to be
manufactured that uses our resources the most efficiently. The point on the
Production Possibilities Frontier preferred above all others
- An economy is producing resources efficiently when the marginal benefit of
the product is equal to the marginal cost of the product (when they intersect)
- Any economic system strives to do one thing, grow economically CH. 2 ECONOMIC PROBLEM LECTURE NOTES ECON
- Economic Growth increases standards of living but it doesn’t avoid scarcity
or opportunity cost
- Capital Accumulation- The growth of capital resources, which includes
Technological Change- Development of new goods and of better ways of
producing goods and services.
- To use resources in R&D we must decrease our production and
consumption of goods and services
- Opportunity cost of economic growth is less current consumption
- Economic growth is not free, it involves resources and the opportunity to do
- Productive Efficiency: When we produce at the lowest possible cost on the
production possibilities frontier
- Comparative Advantage: Activitiy if a person can perform it at a lower
opportunity cost than anyone else.
- Absolute Advantage: Person is more productive than others in some or all
- Absolute advantage measures productivities while comparat