ECON CHAPTER 3

 Production Possibilities Frontier

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- Điểm bên ngoài (above the curve): impossible

- Below the curve: possible and not efficient
- On the frontier: efficient, optimal
- Increasing/ Decreasing/ Constant Opportunity Cost

 Others:
- If the market functions well, goods that have high opportunity costs will also have
high money costs and vice versa.
- An optimal decision is one that is selected after implicit or explicit comparison of the
consequences of each of the possible choices that is shown by analysis to be the one
that most effectively promotes the goals of that person.
- The principle of increasing cost states that as the production of one good expands, the
opportunity cost of producing another unit of this good generally increases.
- The position and shape of PPF are determined by the economy’s physical resouces,
its skills and technology, its willingness to work, and how much it has devoted in the
past to the construction of factories, research and innovation.
- How to allocate its scarce resources:
o How to utilize its resources
o Combinations of goods to produce
o Distribute the outputs
- Economists define efficiency as the absence of waste
 - A particularly deplorable form of waste is caused by discrimination against minority
and female workers
- Adam Smith – division of labor – pin factory
- When someone is more productive in performing a task than someone else in this
way, we say we have an absolute advantage in that activity
- A person’s absolute advantage in production over another person is shown by she or
he having higher PPF. The difference in comparative advantage between the two
people is shown by the difference in the slope of their frontiers
- Division of labor is beneficial to an economy if a system of change exists
- Adam Smith noted that people are adept at pursuing their own self-interests and that a
market system harnesses this self-interest remarkably well. -> invisible hand
- When the PPF shifts outwards, we can imply that there has been growth in an
economy. Alternatively, when the PPF shifts inwards it indicates that the economy is
shrinking due to a failure in its allocation of resources and optimal production
capability. A shrinking economy could be a result of a decrease in supplies or a
deficiency in technology. 
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 Practice:
- Suppose that Italy and Austria both produce cheese and wine. Italy’s opportunity cost
of producing a bottle of wine is 3 pounds of cheese. That is, Italy forgoes the
production of cheese when it produces a bottle of wine. Austria’ s opportunity cost of
producing a bottle of wine if 4 pounds of cheese.
 Italy has a comparative in the production of wine
Vì Italy nếu muốn produce wine chỉ mất 3 pounds of cheese, còn Austria làm 1
wine thì phải trade bằng 4 pounds of cheese
Ngược lại, Austria has a comparative advantage in the production of cheese
Vì muốn produce 1 pound of cheese, Austria phải trade bằng ¼ bottle of wine,
trong khi Italy trade bằng 1/3 bottle of wine. (1/4 < 1/3)

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 The opportunity cost of producing apples has increased
- An outward shift of the PPF can be caused by tax reductions that reduce the cost and
increase the volume of investment in factories and machinery
- The desire for profit ensures that producers use inputs efficiently and firms produce
output that consumers demand
- David Ricardo -> the comparative advantage
- The principle of increasing cost explains the concave shape of the PPF
- The negative slope of the PPF can be explained by the scarcity of resources

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 Vì nếu bằng or bé hơn 1500 thì Robert đã lấy offer của anh rùi
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