Chapter 2 Economic Problem
1.​
Production Possibilities Frontier Module
Production Possibilities Frontier
●​ graphical representation of the maximum output combinations an economy can
produce given its resources and technology
​
Tradeoff
●​ Every choice along the PPF involves sacrificing one good for another
Opportunity Cost
●​ highest-valued alternative forgone
Marginal Cost
●​ opportunity cost of producing 1 more unit of goods
●​ Increasing MC → PPF bows outward
●​ MC = slope of PPF
Why increasing MC?
●​ resources are not equally productive in all activities
●​ the more we produce, the less productive the additional resources are
Efficient Allocation
●​ Production Efficiency: achieve if we cannot produce more unit of 1 good without
producing less of the other
○​ every points on PPF achieve
●​ Allocation Efficiency: achieve if produce at the lowest cost and provide the greatest
benefit