Introduction - Thinking like an economist - The economist as scientist

7 important questions on Introduction - Thinking like an economist - The economist as scientist

Why does the PPF usually have a bowed out shape?

Usually there are increasing opportunity costs, which are caused by diminishing returns.

What does the slope of the production possibilities frontier tell us?

- The opportunity cost of one good as measured in terms of another good.
- The most efficient production possibilities.

When is an economy said to be efficient (see the PPF)?


- When an economy is using all its scarce resources efficiently.
- Points on the slope of the PPF are efficient outcomes.
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What does the shape of the Production Possibilities Frontier tell us?

Whether the opportunity cost is increasing, decreasing or constant.

What happens when a technological advancement, shifts the Production Possibilities Frontier outward?

Production increases and the economy grows, due to higher production efficiency.

What does microeconomics study?

- How individual actors make decisions (households and firms) / allocate scarce resources. Has to do with psychology of indivudual actors.
- Philosophical.

Why is it important to consider microeconomics when studying macroeconomic developments?

Because changes in the economy are caused by millions of individual decisions: microeconomics.
It's important to first understand the individual resource allocations.

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