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Chapter 2

Chapter 2 econ 1000.docx

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ECON 1000
Sadia Malik

Chapter 2The Economic Problem Production PossibilitiesOpportunity Cost Quantities of goods and services that we can produce are limited both by our available resources and technology If we want to increase production of one good we must decrease production of something elsetradeoffs PPF is the boundary between those combination of goods and services that cancannot be produced PPF illustrates scarcity because we cannot obtain points outside the frontier inside or on the PPF are only acceptedProduction Efficiency Produce goods and services at lowest possible costOccurs at all points on the PPFInside PPF is inefficient because giving up more or less than necessary resources misused Tradeoffs along the PPFEvery choice along the PPF involves a trade offAll tradeoffs involve a costopportunity costOpportunity Cost Highest valued alternative forgoneExample Opportunity cost of producing another pizza is the cola we must forgo Opportunity Cost is a ratio decrease in the quantity produced of one good divided by the increase in quantity of another goodExample Cans decrease by 3 pizza increase by 1 so for every pizza you get 3 cansPPF are generally bowed outward concave reflecting increasing opportunity costs as more of a good is produced
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