Chapter 2 (1)

Question 1

WHO PRODUCES WHICH GOODS AND WHY

Answer 1

People around the globe coordinate production activities to sell to consumers what they want

► The global production is a natural outcome of people everywhere acting in their own self-interest to improve their own lives (invisible hand)

Question 2

PRODUCTION POSSIBILITIES FRONTIER (PPF)

Answer 2

it is a line / curve that shows all the possible combinations of outputs that can be produced using all available resources

► Points inside the frontier (e.g., point T) = achievable, but don’t make full use of all resources–refer to figure 2-2

Question 3

(PPF) Constraints on production

Answer 3

Canada = cannot produce combinations of shirts & wheat that lie outside the frontier–such as point U (figure 2-2)

► Points inside the frontier (e.g., point T) = achievable, but don’t make full use of all resources–refer to figure 2-2

Question 4

(PPF) what are the trade offs?

Answer 4

Each worker = can only make either one shirt OR two bushels of wheat per day

► In other words, there is a trade-off between the quantity of wheat produced & the quantity of shirts produced

OPPORTUNITY COST: of one shirt = two bushels of wheat

Question 5

A pattern (producing additional units of a good)

Answer 5

the opportunity cost of producing an additionally unit of a good = typically increases as more of each resources is allocated to it.

Examples:
► Growing more wheat: requires reallocating not only workers but farmland

►Making more shirts: setting up new factories & buying more sewing machines

Question 6

EFFICIENT

Answer 6

points that lie ON the frontier –> b/c they squeeze the most output possible from all available resources

Question 7

INEFFICIENT

Answer 7

points within (inside) the frontier–b/c they do not use all available resources

Question 8

Shifting the PPF

Answer 8

a lot of things = have changed
-such as an explosion in productive capacity

► PPF = a useful tool for illustrating this change & understanding how it affects the constraints & trade-offs the country faces.

1. There are more workers: Canadian population = much larger now; thus, having more workers = more people available to product shirts
2. Technological advances (thus, expanded productive capacity)