ECON-E 201 Chapter Notes - Chapter 2: Marginal Utility, Marginal Cost, Opportunity Cost

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9 Sep 2016
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ECON-E 201 Full Course Notes
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Answer: the concept of scarcity is graphically illustrated by the presence of unattainable: how does the production possibilities frontier illustrate scarcity? combinations of production. Thus once production is on the ppf, the decision-maker cannot have more of both goods and so suffers from scarcity. Answer: production efficiency occurs on the ppf when production takes place. From any point in the interior of the frontier, changes can be made to increase the production of all goods. Clearly, such a point cannot be productively efficient. But on the frontier, increasing the production of one good requires decreasing the production of another good. Answer: the negative slope of the production possibility curve illustrates opportunity cost. Along the production possibility frontier, in order to obtain additional units of a good, the output of another good must fall. this sacrifice (less of the second good) is the opportunity cost of producing more of the first good.

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