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© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
What is Production?
• Human resources
• Natural resources
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Three Basic Questions
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Three Basic Questions
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Specialization, Exchange and
Comparative Advantage
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Specialization, Exchange and
Comparative Advantage
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Absolute Versus Comparative Advantage
• Conclusion:
• Country A will specialize in producing food, and
country B will specialize in the production of
clothing.
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Capital Goods and Consumer Goods
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Production Possibility Frontier
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Production Possibility Frontier
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Production Possibility Frontier
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Production Possibility Frontier
• Point F is desirable
because it yields more of
both goods, but it is not
attainable given the
amount of resources
available in the economy.
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Production Possibility Frontier
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Production Possibility Frontier
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Law of Increasing Opportunity Cost
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Economic Growth
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Economic Growth
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Economic Problem
• Command economies
• Laissez-faire economies
• Mixed systems
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Economic Problem
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Laissez-Faire Economies:
The Free Market
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Laissez-Faire Economies:
The Free Market
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Mixed Systems, Markets, and
Governments
• Redistribute income
© 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair