Chapter 2 Scarcity and the world of Trade Offs Production Possibilities curve assumptions 1 resources are fully employed 2 production takes place over a specific time period 3 resources are fixed for the time period 4 technology does not change over the time period 01 14 2014 concaves out because normally the cost of production increases the more you make 1 an example of when the point would be under the curve is during a depression AKA inefficient point 2 1 Scarcity tradeoffs and opportunity costs 3 2 Law of increasing opportunity costs the more you give up the more goods service available in return 4 3 A perfectly efficient economy produces on the curve 5 Economic growth means pushing the frontier outward to move the curve outward to increase output More capital more labor will increase output Scarcity resources Factors of production 1 Physical capital all manufactured resources o stuff used to make other stuff o ex In video was the robot 2 human capital accumulated training and education of workers 3 monetary capital money A B C D Recitation Combination Smart phones Tablets 50 48 25 40 0 10 20 30 A B smart phones 50 48 tablets 0 10 So The opportunity cost of producing one more tablets from A to b in terms of smart phones 48 50 50 48 10 0 2 10 B C Smart phones 48 45 Tablet 10 20 so the opportunity cost is 45 48 20 10 3 10 1 Scarcity resources are limited 2 Opportunity cost increases steeper 3 Efficiency make the best use of A B C D efficient 4 Any point inside the production possibilities curve is inefficient 5 Any point outside the productions possibilities curve requires either more capital economic growth better technology etc Practice problem on page 46 Two people A and B Absolute Advantage AA Comparative Advantage CA Laundry Meal Person A 2 hours 1 hour Person B 3 hours 1 hour 1 Who has AA in doing laundry person A 2 Who has AA in meal neither 3 Who has CA in doing laundry person A can prepare two meals in the time of doing 1 load of laundry Person B can prepare three meals in the time of doing 1 load of laundry So A has comparative advantage in doing laundry 4 Who has CA in meal Person B 01 14 2014 01 14 2014
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