Economics 1021: Chapter 2 Textbook Notes
The Economic Problem
Production Possibilities and Opportunity Costs
The production possibilities frontier is the boundary between production
levels that are attainable and those that are not attainable when all the
available resources are used to their limit.
Production efficiency occurs at points on the production possibilities frontier
Along the production possibilities frontier, the opportunity cost of producing
more of one good is the amount of the other good that must be given up
The opportunity cost of all goods increases as the production of goods
Using Resources Efficiently
Allocative efficiency occurs when good and services are produced at the least
possible cost and in the quantities that bring the greatest possible benefit.
The marginal cost of a good is the opportunity cost of producing one more
unit of it.
The marginal benefit from a good is the benefit received from consuming one
more unit of it and is measured by the willingness to pay for it.