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MICRO ECON 1100 Chapter 2 terms
Terms in this set (18)
production possibilities frontier (PPF)
is a graph illustrating the combinations or two types of output that can be produced by a society using the available resources and technology.
the assumptions of the PPF model are:
the available resources (labor, capital, etc.) are fixed, production technology does not change, available resources are fully employed, resources are efficiently allocated.
increasing opportunity costs
are encountered when resources are not well suited to all types of production.
marginal rate of transformation (MRT)
is defined as the absolute value of the slope of the PPF and is a measure of the opportunity cost of producing one more unit of the product represented on the horizontal axis.
concludes that resources are efficiently allocated in a free market economy with perfect competition and no market failures
efficiency and full employment on the PPF (production possibilities model) located where ?
it lies on the frontier
inefficiency and unemployment on the PPF is located where ?
it lies on the inside of the frontier
is achieved when the economy is producing on its PPF because producers are making as much output as they can with available resources.
points outside the PPF are
points inside the PPF are
corresponding to unemployment or inefficiency
when the PPF is a straight line
opportunity is constant
the graphing of increasing opportunity cost, results in what kind of graph ?
when an economy is producing at a point on its production possibilities curve -
the economy is using its resources fully and efficiently
when there is a change in the quantity and quality (productivity) of resources or an improvement in technology, the PPF is likely to shift
in the PPF economic growth requires
an increase in the quantity of resources (land, labor, capital and entrepreneurial ability)
a rotation outward shift from one of the axes of the PPF model indicates
the economy added additional resources or technological know-how that are specific to the automobile industry
recall that it is efficient to continue an activity, such as producing a particular good or service, as long as marginal benefit exceeds marginal cost, stopping where MB = MC, is what type of efficiency ?
economic efficiency, allocative efficiency
outward shift of the PPF is referred to as
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