Intro to Economics: Chapter 2 (Production Possibilities,Opportunity Cost,& Economic Growth

3 Fundamental Economic Questions

What,How,and For Whom to produce goods.

The 'What' Question

asks exactly which goods are to be produced and in what quantities.

The 'For Whom' Question

concerns the division of output among society's citizens.

Marginal Analysis

examines the impact of changes from a current situation and is a technique used extensively in economics. To compare the additional benefits of a change with the additional costs of the change.

Production Possibilities Curve

illustrates an economy's capacity to produce goods,subject to the constraint of scarcity. The curve is a graph of the maximum possible combination of two outputs that can be produced in a given period of time.

Investment

means an economy is producing and accumulating capital. Consists of factories,machines,and inventories (capital) produced in the present that are used to shift the production possibilities curve outward in the future.

Inefficient Production

occurs at any post inside the production possibilities curve.

Technology

remains constant and is the body of knowledge applied to the production of goods.

Economic Growth

represented by the production possibilities curve shifting outward as the result of an increase in resources or an advance in technology.

The 'How' Question

requires society to decide the resource mix used to produce goods.

Opportunity Cost

the best alternative forgone for a chose option.

Law of Increasing Opportunity Costs

the opportunity cost increases as the production of an output expands.

Efficient Production

these are all the points along the curve, they are each point represents a maximum output possibility