Chapter 16 Outline
A. Production Possibilities for the Economy
1. The economy uses resources to produce goods and services.
a. Land, labor, and capital are the three primary resources.
1. Land is all natural resources.
2. Labor is all physical and mental abilities used by people in the production process.
3. Capital is the man-made, durable items used in the production process.
2. A production possibilities curve shows the maximum combinations of two goods and services that an economy can produce when resources are fully used and the best technology is applied.
a. The best technology is the technology that requires the fewest resources to produce a given combination of goods and services.
B. The Best Combination of Goods and Services
1. The best combination of goods and services is the combination which satisfies wants as fully as possible.
2. In order to achieve the best combination, the economy should produce at the point where marginal benefit and marginal cost are equal.
C. Resource Accumulation, Technical Progress, and Technical Efficiency Change
1. Economic growth, a rightward shift in the production possibilities curve, will occur if resources expand.
2. Technical progress, an improvement in the best technology that allows more output to be produced with a given amount of resources, will result in economic growth.
3. Technical efficiency change, a change from the use of less than the best to the best technology, results in an increase in output.
a. Unlike an expansion of resources and technical progress, technical efficiency change moves an economy from a point inside the production possibilities curve to a point on the curve. The curve does not shift.
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