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| QUICK REVIEW 2-1 |
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- Human material wants are virtually unlimited.
- Economic resources land
capital
labor
and
entrepreneurial ability are scarce.
- Economics is concerned with the efficient
allocation of scarce resources to achieve the maximum fulfillment of society's material
wants.
- Economic efficiency embodies full employment and
full production; the latter requires both productive and allocative efficiency.
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| QUICK REVIEW 2-2 |
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- The production possibilities curve illustrates
four concepts: (a) scarcity of resources is implied by the area of unattainable
combinations of output lying outside the production possibilities curve; (b) choice among
outputs is reflected in the variety of attainable combinations of goods lying along the
curve; (c) opportunity cost is illustrated by the downward slope of the curve; (d) the law
of increasing opportunity costs is implied by the concavity of the curve.
- Full employment and productive efficiency must be
realized for the economy to operate on its production possibilities curve.
- A comparison of marginal benefits and marginal
costs is needed to determine allocative efficiency--the best or optimal output mix on the
curve.
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| QUICK REVIEW 2-3 |
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- Unemployment and the failure to achieve
productive efficiency cause the economy to operate at a point inside its production
possibilities curve.
- Increases in resource supplies
improvements in
resource quality
and technological advance cause economic growth
depicted as an outward
shift of the production possibilities curve.
- An economy's present choice of capital and
consumer goods helps determine the future location of its production possibilities curve.
(See Global Perspective 2-1.)
- International specialization and trade enable a
nation to obtain more goods than indicated by its production possibilities curve.
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