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Introduction
Chapter 1
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Revision:
Economics Trade-off Opp. Cost Scarcity Microeconomics Macroeconomics Positive Analysis Normative Analysis
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Three Basic Economic Questions
As an entrepreneur and as an economic agent, there are three basic economic questions you should ask when deciding how to use scarce resources:
What to produce? How to produce? For whom to produce?
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Production-possibility frontier
In economics, a production-possibility frontier (PPF), sometimes called a production-possibility curve or product transformation curve
The PPF shows the maximum amount of one commodity that can be obtained for any specified production level of the other commodity given the society's technology and the amount of factors of production available
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Production-possibility frontier
Butter Guns
0 15
1 14
2 12
3 9
4 5
5 0
PPF
0
2
4
68
10
12
14
16
0 2 4 6
Butter
Gun
s
PPF
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Efficiency
PPF represent how much of the latter must be sacrificed for a given increase in production
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Opportunity cost
Opportunity cost is measured in the number of units of the second good forgone for one or more units of the first good.
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Shapes (Increasing opp. Cost )
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Constant opp. Cost
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Decreasing opp. Cost