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ECONOMIC
PROBLEM
POSSIBILITIES
AND
OPPORTUNITY COST
USING RESOURCES
EFFICIENTLY
Allocative efficiency occurs when goods and
services are produced at the least possible
cost and in the quantities that bring the
greatest possible benefit.
The marginal cost of a good is the oppoturnity
cost of producing are more unit.
The marginal benefit from a good is the
benefit received from consuming one more
unit of it, as measured by the willingness to
pay for it.
The marginal benefit of a good decreases as
the amount of the good available increases.
Resources are used efficiently when the
marginal cost of each good is equal to its
Marginal cost is calculate from the slope of the PPF as the quantity
of pizza produce increase, the PPF gets steeper and the marginal
cost of a pizza increase. The bar inpar a (show the opportunity cost
of pizza in oven million. The bars pat b) show the cost of an effect
average pizza in needs of these one million blocks. The curve, mc,
show the marginal cost of a pizza at each point along the PPF. This
curves passes through the center of each of the bar. In part (b)
ECONOMIC GROWTH
Economic growth, which is the expansion of
production possibilities, results from capital
accumulation and technological change.
The oppoturnity cost of economic growth is forgone
current consumption.
ECONOMIC
COORDINATION
Firms coordinate a large amount of
economic activity but there is a limit to the
efficient size of a firm.
Markets coordinate the economic choices
of people and firms.
Markets can work efficiently only when
property right exist.
Money makes trading in markets more
efficient.