16466 Chapter Notes - Chapter 2: Opportunity Cost, Marginalism, Comparative Advantage
Document Summary
Economics for today production possibilities and opportunity cost chapter 2. Key points: the three fundamental economic questions, opportunity cost, marginal analysis, the production possibilities frontier, present investment and future production. Opportunity cost: because of scarcity, people must make choices, and each choice incurs a cost (sacrifice) known as opportunity cost. It is the best alternative sacrificed for a chosen alternative. It applies to personal, group and national decision-making and underpins all aspects of economics, as it is linked closely to scarcity. Marginal analysis: marginal analysis examines the effects of additions to or subtractions from a current situation. It is a very valuable tool in economics because it considers the effects of change resulting from decision-making. Individuals, firms and governments all face marginal analysis. The production possibilities frontier (ppf: the economic problem of scarcity means that society"s capacity to produce combinations of goods is constrained by its limited resources.
