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Chapter 2

Chapter 2 Notes FULL lecture notes for Chapter 2


Department
Economics
Course Code
ECON102
Professor
Angela Trimarchi
Chapter
2

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Econ 102 Chapter 1 Notes Prof: Angela Trimarchi
Chapter Two
The Economic Problem
All economies focus on two things:
Production
Consumption
Ultimately, the level of production will determine the level of
consumption
Production Possibilities Frontier:
All possible combinations of outputs that can be produced with given
inputs and technology
What is another name for inputs?
Resources, Factors of production
Diagram of the Production Possibilities Frontier
What is the opportunity cost of moving from
point A to D
5 CDs
There is no opportunity cost when moving
from an inefficient point to an efficient one
ie. from E to X
20
15
11
6 8
X

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Econ 102 Chapter 1 Notes Prof: Angela Trimarchi
Attainable Versus the Unattainable Region
Label the Attainable
Region (in green)
Label the Unattainable
Region (not in green)
Inefficient Points
The inefficient points are: C, E, F
& G
The efficient points are: A, B & D
(the remaining points)
Characteristics of the Production Possibilities Frontier (PPF)
Downward sloping
Points outside the PPF are currently unattainable
Points on and inside the PPF are attainable
Points inside the PPF are inefficient
Points on the PPF are efficient
the slope on the PPF gives the opportunity cost of producing one more
until of the good on the x-axis
There are many possible efficient points.
Efficiency
society getting the most it can from its scarce resources

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Econ 102 Chapter 1 Notes Prof: Angela Trimarchi
Equity
making sure there is an equal distribution of income for everyone in
the economy (everyone gets the same sized slice of the economic pie)
When moving horizontally or vertically from an inefficient point to an
efficient one, there IS NOT an opportunity cost
Slope of the PPF
Exercise: Calculate the slope of the PPF below and indicate the opportunity
cost of producing one more unit of Good X
Reciprocal of the Slope of the PPF
Exercise: Calculate the reciprocal of the slope of the PPF below and indicate
the opportunity cost of producing one more unit of Good Y
2
03
Good Y
Good X
a
b
10
8
0
2
03
Good Y
Good X
a
b
10
8
0
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