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Chapter 2

Economics 1021A/B Chapter Notes - Chapter 2: Marginal Utility, Opportunity Cost, Marginal Cost

Course Code
ECON 1021A/B
Jeannie A Gillmore

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Chapter 2 The Economic Problem 9/12/2012 6:05:00 PM
Ceteris Paribus
“If all other relevant things remain the same”
Production Possibilities Frontier
- boundary between those combinations of goods and services that
can be producted and those that cannot.
- can’t produce points outside the PPF
- bowed out resources are not all equally productive in all
Production efficiency
- if produced at lowest possible cost
- at all points on the PPF
- inside PPF, resources are misallocated or unused
- every choice on PPF involves a trade off
- all trade offs involve a cost opportunity cost
Opportunity cost
- an action that is the highest valued alternative forgone
- it’s a RATIO
Allocative efficiency
- at lowest possible cost
- quantities that provide greatest possible benefit
Marginal cost
- opp. Cost of producing ONE MORE UNIT
- calculated from the slope of PPF
Marginal benefit curve
- decreasing marginal benefit
the principle of decreasing marginal benefit
Economic Growth
- expansion of production
Technological Change
Capital accumulation
- growth of capital resources, includes human capital
Gains from Trade
- specialization producing one or a few goods