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Lecture 2

WEEK 2.docx

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Department
Economics
Course
ECON 1000
Professor
George Georgopoulos
Semester
Summer

Description
WEEK 2 CHAPTER 2: THE ECONOMIC PROBLEM PRODUCTION POSSIBILITIES AND OPPORTUNITY COSTS Production possibilities frontier (PPF) – boundary between combinations of goods that can be produced, and those that cannot Production efficiency – when we produce goods at the lowest possible cost (any point on the PPF line) Production inside the line means that some resources are either being wasted or not used to the best of their ability The line shows us there is a limit to what we can produce, and that some things are not possible. We can produce more of one thing only if we produce less of something else Opportunity cost – highest-valued alternative that we gave up Expressed as a ratio – decrease in the quantity of one good divided by increase in the quantity of another good (the opportunity cost of the other good would just be the inverse) USING RESOURCES EFFIEIENTLY Allocative efficiency – produced at lowest possible cost which provide greatest possible benefit Marginal cost – opportunity cost of producing one more of something (slope of PPF) Preferences – description of likes and dislikes Marginal benefit – most that people are willing to pay Marginal benefit curve – relationship between marginal benefit and the quantity consumed of a good. The more we have, the smaller marginal benefit (more we consumer, the more we tire of it – principle of decreasing marginal benefit) At any point on the PPF, we cannot produce more without giving something up. The best point is when we cannot produce more of one thing without giving up some of the other good that provides the greater benefit Marginal benefit = Marginal cost ECONOMIC GROWTH Technological change – development of new goods & better methods of production Capital accumulation – growth of capital resources, including human capital Concept of g
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