Economics 1021A/B Study Guide - Human Capital, Allocative Efficiency, Marginal Cost

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ECON 1021A/B Full Course Notes
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ECON 1021A/B Full Course Notes
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Production possibilities frontier (ppf) boundary b/w those combo of goods and services that can be produced and those that cannot. Ppf illustrates scarcity b/c we cannot attain points outside frontier. These points are wants that cannot be satisfied. Can produce at any point inside/on ppf. Product efficiency achieved if we produce goods/service at lowest cost inefficient inside ppf resources unused/misallocated. Occurs at all points on ppf used up resources. Every choice along ppf involves a tradeoff. Eg. move point c d, 1 mil more pizza but 3mil fewer cola. Additional 1mil pizza cost 3 mil cola 1 pizza cost 3 cans of cola. Opportunity cost of producing additional can = inverse of opp cost of producing additional pizza. Opportunity cost ratio decrease in quantity produced of one good divided by increase in quantity produced of other good. Allocative efficiency goods/services produced at lowest cost in quantities providing greatest benefit. Marginal cost opportunity cost of producing one more unit of it.

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