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Chapter 2

Microeconomics CHAPTER TWO: Shadab Qaiser.docx

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York University
ECON 1000
Shadab Qaiser

Economics Chapter 2 The production possibilities frontier PPF is the boundary between those combinations of goods and services that can be produced and those that cannot o To illustrate the PPF we focus on two goods at a time and hold the quantities produced of all the other goods and services constant o Read page 30 to see a graph giving an example of pizza and colasProduction efficiency is achieved when we produce goods and services at the lowest possible cost This outcome occurs at all the points on the PPF At points inside the PPF production is inefficient because we are giving up more than necessary of one good to produce a given quantity of the other goodo Only when we produce products on the PPF do we incur the lowest possible cost of production o Production is inefficient inside the PPF because resources are either unused or misallocated or both o Resources are unused when they are idle but could be working example leaving some factories idle or some people unemployed o Resources are misallocated when they are assigned to tasks for which they are not the best match example assigning skilled cola workers to work in a pizza shop when its not their area of specialtyFor every choice involved in the PPF involved a tradeoffmore pizza for less cola or vice versaOpportunity co
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