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Chapter 3 The Economic Problem

Chapter 3 The Economic Problem. 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

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Chapter 3 The Economic Problem

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  1. Chapter 3The Economic Problem

  2. 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

  3. Specialization and Trade • Specialization • Comparative advantage – country with the lowest opportunity costs • Absolute advantage – can produce it more efficiently

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