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Summary. Land, labor, capital, and entrepreneurship are scarce. Which means we need to make choices about what to produce. Choices reflected in the PPF. PPF can grow if new natural resources are discovered, or population grows, or more capital is created.
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Summary • Land, labor, capital, and entrepreneurship are scarce. • Which means we need to make choices about what to produce. Choices reflected in the PPF. • PPF can grow if new natural resources are discovered, or population grows, or more capital is created. • But the real boost comes from technology and human capital enables us to use resources more effectively. • Creates the possibility of economic growth – an increase in the amount of goods and services produced.
Key Ideas • Needs and wants are unlimited, but resources are scarce. Economics studies decisions under conditions of scarcity. • Cost / benefit analysis helps us make economic decisions choosing the highest net benefit. • Cost is best measured by opportunity cost. • Marginal benefit and cost analysis helps us decide whether to do one more. Important to ignore sunk costs.
Key Ideas - 2 • Production possibilities frontier shows economically efficient choices in what we can produce. Increasing opportunity costs cause the curve to bow out. • Economic efficiency means we can only produce more of one thing by giving up some of another. • Resources include land, labor, capital and entrepreneurship. • Economic growth is the increase in goods and services produced (PPF moves outward). • Human capital and technology help use resources more efficiently and promote economic growth.
