UWG ECON 2106 - The Economic Problem (54 pages)

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The Economic Problem



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The Economic Problem

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Lecture Notes


Pages:
54
School:
University of West Georgia
Course:
Econ 2106 - Principles of Microeconomics
Principles of Microeconomics Documents

Unformatted text preview:

CHAPTER CHECKLIST When you have completed your study of this chapter you will be able to 1 2 Use the production possibilities frontier to illustrate the economic problem Calculate opportunity cost 3 Define efficiency and describe an efficient use of resources 4 Explain how people gain from specialization and trade 3 1 PRODUCTION POSSIBILITIES Production Possibilities Frontier Production possibilities frontier The boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced given the available factors of production and the state of technology The PPF is a valuable tool for illustrating the effects of scarcity and its consequences 3 1 PRODUCTION POSSIBILITIES Figure 3 1 shows the PPF for bottled water and CDs Each point on the graph represents a column of the table The line through the points is the PPF 3 1 PRODUCTION POSSIBILITIES The PPF puts three features of production possibilities in sharp focus Attainable and unattainable combinations Full employment and unemployment Tradeoffs and free lunches 3 1 PRODUCTION POSSIBILITIES Attainable and Unattainable Combinations Because the PPF shows the limits to production it separates attainable combinations from unattainable ones Figure 3 2 on the next slide illustrates the attainable and unattainable combinations 3 1 PRODUCTION POSSIBILITIES We can produce at any point inside the PPF or on the frontier Points outside the PPF such as point G are unattainable The PPF separates attainable combinations from unattainable combinations 3 1 PRODUCTION POSSIBILITIES Full Employment and Unemployment Full employment occurs when all the available factors of production are being used Unemployment occurs when some factors of production are not used Figure 3 3 on the next slide illustrates full employment and unemployment 3 1 PRODUCTION POSSIBILITIES 1 When resources are fully employed production occurs at points on the PPF such as D and E 2 When resources are unemployed



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