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