1. DECISION MAKING AT THE MARGIN
Thinking at the margin: deciding whether to do or use one additional unit of some resource
What is the cost/benefit of studying one more hour/two more hours/three more hours, etc.?
This is also known as cost/benefit analysis.

2. PRODUCTION POSSIBILITIES CURVE (PPC)
a graph that shows all the
possible combinations of
producing two different goods
/services in a particular period of
time
The line connecting the points on
the PPC is called the production possibilities frontier

3. PPCs can tell us 3 types of important information:
An economy’s efficiency
Whether an economy has grown or shrunk
The opportunity
cost of decisions
to produce more
of one good/
service

4. EFFICIENCY An economy’s efficiency: using
resources in such a way as to
maximize the production of goods/services
Any point on the line represents maximum efficiency
Any point drawn inside (such as point X on the graph above) the line represents an underutilization (using fewer resources than the economy is capable of) of resources
* Point Y on the graph above represents an impossibility because we don’t have that combination of resources.

5. GROWTH A PPC is a moment ‘frozen in time’ – in the real world
resources are
constantly increasing (shift of the PPF to the right) or decreasing (shift of the PPF to the left)

6. COSTS PPCs can show us what we give up by choosing one
option over the other
(remember, in economics cost is not money, but the alternative we give up when we choose)
If we choose to use our limited resources to make more of one good our cost is making less of the other good
Specific costs can easily be measured on a PPC