Introduction Test - 8

A production possibilities frontier can be used to illustrate how the unemployment or misallocation of resources causes a society to produce fewer goods and services than possible.Points on or inside the PPF are attainable. Production efficiency is achieved when it is impossible to produce more of one good without producing less of some other good; i.e., no resources are being wasted.

What to produce refers to a problem in which decision regarding which goods and services should be produced is to be taken. Since its resources are limited, every economy has to decide what commodities are to be produced and in what quantities. The guiding principle for an economy here is to allocate resources in such a way that gives maximum aggregate utility to the society.

Opportunity cost refers to a benefit that a person could have received, but gave up, to take another course of action. Stated differently, an opportunity cost represents an alternative given up when a decision is made.
 

The production possibility frontier (PPF) is a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. The PPF assumes that all inputs are used efficiently.

Anything that causes economic output to increase or decrease will shift this curve. When the economy grows and all other things remain constant, we can produce more, so this will cause a shift in the production possibilities curve outward, or to the right.

Macroeconomics involves the study of aggregate factors such as employment, inflation, and gross domestic product, and evaluating how they influence the economy as a whole.

The subject matter of macroeconomics is income and employment, inflation, balance of payment problems etc. which occur in milder forms all the time.

Opportunity cost, also known as alternative cost, is the value of the choice of a best alternative cost.

In Economics, goods are materials that satisfy human wants and provide utility. A good may be a consumable item that is useful to people but scarce in relation to its demand, so that human effort is required to obtain it.