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This chapter delves into the Production Possibilities Curve (PPC), illustrating the maximum amounts of two goods producible at full employment. It explains the Law of Increasing Costs, which states that to obtain more of one good, larger quantities of the other must be sacrificed. Key concepts such as full employment, unemployment, and unattainable production levels are discussed, alongside the significance of economic growth, resource quality, and quantity. Additionally, the chapter covers the importance of specialization and comparative advantages in trade, particularly for developing countries.
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Production Possibilities Curve (Frontier): Maximum amounts of 2 goods that can be produced at full employment of all resources • Law of Increasing Costs – to get more of one good you must give up larger amounts of the other good • Points • Full employment – on the curve • Unemployment – inside the curve • Unattainable – outside the curve • Economic Growth – shifting the PPC outward • Increase the quantity and/or quality of resources • Developing Countries
Specialization and Trade • Specialization • Comparative advantage – country with the lowest opportunity costs • Absolute advantage – can produce it more efficiently
