The Fundamentals of Economics

The Fundamentals of Economics PowerPoint PPT Presentation

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Production Possibilities Frontiers and Opportunity Costs. Learning Objective 2.1. Production possibilities frontier (PPF) A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology. . Production Possibilities Frontier. M

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The Fundamentals of Economics

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2. The Fundamentals of Economics Two facts constitute the Economizing Problem: Society’s economic wants are unlimited & insatiable Economic resources are limited or scarce Scarcity The situation in which unlimited wants exceed the limited resources available to fulfill those wants.

3. Production Possibilities Frontiers and Opportunity Costs

4. Production Possibilities Frontier Model Assumptions: Full Employment & Productive Efficiency Recourses are Fixed but can be reallocated to different uses Fixed Technology (Short Period of Time) Economy is Producing ONLY Two (2) Goods An economy achieving full employment & productive efficiency must sacrifice some of one good to obtain more of another good Scarce resources prohibit economy from having more of both goods

5. Production Possibilities Frontiers and Opportunity Costs

6. Increasing Opportunity Cost Since resources are scarce, people must choose between alternatives Opportunity Cost: The amount of other products that must be forgone to obtain 1 unit of a specific good The opportunity cost of each additional unit of a good is greater than the opportunity cost of the preceding one Opportunity cost is measured in real terms The more of a product that is produced, the greater its opportunity cost Increasing OC because economic resources are not completely adaptable to alternative uses

7. Production Possibilities Frontiers and Opportunity Costs

8. Production Possibilities Frontiers and Opportunity Costs

9. Trade-offs: Hurricane Katrina, Tsunami Relief, and Charitable Giving

10. Comparative Advantage and Trade

18. The Market System

19. The Market System

20. The Market System

21. The Market System

22. The Market System

23. The Market System

25. The Market System

26. The Market System

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