3.1 Parable for the Modern Economy
3.1 a. Production Possibilities
The production possibility frontier is a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. [1]
Example: A firm decided to manufacture computers and textbooks. It can either produce 40 textbooks and 7 computers or 70 textbooks and 3 computers, it is up to the firm to decide what it needs more. The opportunity cost of producing an additional 30 textbooks is 3 computers. [1]
Production Possibilities [2]
3.1 b. Specialization and Trade
Specialization is a method of production where a business, area or economy focuses on the production of a limited scope of products or services to gain greater degrees of productive efficiency within an overall system. [3]
Example: When setting up a factory, an assembly line is organized to increase efficiency rather than producing the entire product at one production station. [3]
Specialization [4]
