ECN 112 chap 3
Terms
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- is the boundary between the combinations of the goods and sevices that can be produced and the combinations that cannot be produced, given the available factors of production- land, labor, capital, and entrepreneurship- and the state of technology
- production possibilities frontier (PPF)
- PPF puts 3 features of production possibilities in sharp focus
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-attainable and unattainable combinations
-full employment and unemployment
-tradeoffs and free lunches - is a constraint or limit to what is possible that forces an exchange or a substitution of one thing for something else
- tradeoff
- every choice invloves an opportunity cost
- no such thing as a free lunch
- occurs when all available factors of production are being used
- full employment
- unemployment can be used to describe
- unused land, labor, and capital
- some resources are not being used or are not being used in their most productive way (inside PPF) more of some goods or services can be produced without producing less of others
- when a free lunch is possible
- We might___________ get a free lunch, but we______________ face tradeoffs
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occasionally
persistantly - decrease in the other items' quantity divided by the increase of the quantity of the particular item
- opportunity cost ratio
- The opportunity coat of one item is equal to the ________ of the opportunity cost of the other item
- inverse
- increasing opportunity cost on a graph
- PPF line bows outward
- when you have increasing opportunity costs than the items are not
- equally productive
- occurs when we produce the quantities of goods and services that people value most highly
- efficiency
- efficiency is achieved when two conditions are met-
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-production efficiency
-allocative efficiency - if we cannot produce more of one good or service without producing less of some other good or service (on PPF) not under
- production efficiency
- unemployed resources or resources not used most productively is
- production inefficiency
- when we produce the combination of goods and services on the PPF that we value most highly
- allocative efficiency
- PPF shows what is ________, marginal benefit is an expression of what is ________
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feasible
desirable - ____________, is the quantity people must forgo. _____________, is the quantity people are willing to forgo.
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opportunity cost
marginal benefit - to achieve allocative efficiency we must
- compare marginal benefit with the marginal cost
- concentrating on the porduction of only one good
- specialization
- if one person can perform the activity at a lower opportunity cost than someone else
- comparative advantage
- when one person is more productive than another person in several or even all activities
- absolute advantage
- not possible for anyone to have ____________ in everything
- comparative advantage