What is microeconomics?

The following notes are the basic concepts in the mainstream (Capitalistic, neo-classical) Economics.

Production Possibility Frontier (PPF)

  • Production Possibility Frontier (PPF) shows the maximum output that an economy can produce at any given moment. (ex,. Guns & Butter)
    • PPF is a boundary that separates the attainable from the unattainable
  • If the production of goods occurs at the point ONĀ the PPF curve, the economy is productively efficient because it uses all available resources.
    • At the productively efficient point, we face a trade-off.
    • Economy can only produce one product more by producing another less. (opportunity cost)
    • Productively inefficient: Production is at the point INSIDE the PPF -> Unused or misallocated resources
  • With international trade, the consumption can be outside of PPF.

Opportunity Cost

  • Resources have alternative uses.
  • The opportunity cost is the highest-valued alternative forgone.

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