Chapter 3 The Economic Problem

Production Possibilities Curve (Frontier): Maximum amounts of 2 goods that can be produced at full employment of all resources  Law of Increasing Costs – to get more of one good you must give up larger amounts of the other good  Points  Full employment – on the curve  Unemployment – inside the curve  Unattainable – outside the curve  Economic Growth – shifting the PPC outward  Increase the quantity and/or quality of resources  Developing Countries

Specialization and Trade  Specialization  Comparative advantage – country with the lowest opportunity costs  Absolute advantage – can produce it more efficiently