Economics 1021A/B Chapter 2: Microeconomics Chapter 2 Readings

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Microeconomics Chapter 2 Readings
Production Possibilities and Opportunity Cost:
The production possibilities frontier (PPF) is the boundary
between those combinations of goods and services that can be
produced and those that cannot.
The PPF illustrates Scarcity because the points outside the frontier
are Unattainable.
oThese points describe WANTS that can’t be satised.
We can produce any point inside the PPF or on the PPF. These points
are attainable.
Production E!ciency:
We achieve production e!ciency if we produce goods and services
at the lowest possible cost.
This outcome occurs at all the points ON the PPF.
Points on the inside are ine$cient because we are more than
necessary of one good to produce a given quantity of the other good.
Only when we produce on the PPF do we incur the lowest possible cost
of production.
Production inside of the PPF is ine!cient because resources are either
unused or misallocated or both.
Tradeo$ Along the PPF:
A CHOICE along the PPF involves a TRADEOFF.
Opportunity Cost:
The opportunity cost of an action is the highest-valued alternative
forgone.
Opportunity Cost is a Ratio
It is the decrease in the quantity produced of one good divided by the
increase in the quantity produced of another good as we move along
the PPF.
Increasing Opportunity Cost:
The outward-bowed shape of the PPF re)ects increasing opportunity
cost.
The PPF is bowed outward because resources are not all equally
productive in all activities.
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