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Chapter 2.docx

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ECON 1000
Ying Kong

Chapter 2 The Economic ProblemProduction Possibilities and Opportunity The production possibilities frontier PPF is the boundary between those combinations of goods and services that can be produced and those that cannotTo illustrate the PPF we focus on two goods at a time and hold the quantities of all other goods and services constant o That is we look at a model economy in which everything remains the same ceteris paribus except the two goods being consideredThis graph shows the PPF for two goods cola and pizzasAny point on the frontier such as E and any point inside the PPF such as Z are attainable Points outside the PPF are unattainableProduction EfficiencyWe achieve production efficiency if we cannot produce more of one good without producing less of some other good o Points on the frontier are efficientAny point inside the frontier such as Z is inefficient At such a point it is possible to produce more of one good without producing less of the other At point Z some of the resources are either unemployed or misallocated
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