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Fundamental economic concept of opportunity costs

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Production Possibilities Curve

The Production Possibilities Curve is an economic model that is used to represent many economic concepts such as scarcity, opportunity cost, and efficiency.

Required Case Readings:

Rittenberg L. and T. Tregarthen (2009). Chapter 1 (sections 1-3): Economics: The Study of Choice Principles of Microeconomic Analysis. FlatworldKnowledge.com. Retrieved June 6, 2011 from: click here

Rittenberg L. and T. Tregarthen (2009). Chapter 2 (sections 1-4): Confronting Scarcity: Choices in Production Principles of Microeconomic Analysis. FlatworldKnowledge.com. Retrieved June 6, 2011 from: click here

After reading the materials listed above, please address the following questions in a 4-5 page essay:

1. How does a college education increase one's human capital?

2. Does your college tuition fully reflect the opportunity cost to you of taking the course? What is your personal opportunity cost of taking this course?

Review the Case in Point essay - The European Union and the Production Possibilites Curve, - in section 4 of Chapter 2 in the Principles of Microeconomics online text listed above to address the following two questions.

3. Does a reduction in trade barriers cause a country to move closer to its production possibilities curve or does it cause the production possibilities curve to shift outward? What factors would cause the production possibilities curve to shift outward (economic growth)?

4. Using the same case, what role did comparative advantage play in trade among member nations? What was the effect on the standard of living among trading nations?

Case Assignment Expectations:

Use concepts from the modular background readings as well as any good quality resources you can find from the cyberlibrary or other internet search engines. Please be sure to cite all sources within the text and a reference list at the end of the paper.

The following items will be assessed in particular:

Your ability to understand fundamental economic concept such as opportunity costs.

Some in-text references to the modular background readings (APA formatting not required).

The essay should address each element of the assignment. Remember to support your answers with solid references including the case readings.

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Solution Summary

Production Possibilities Curve are examined to analyze fundamental economic concept of opportunity costs.

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Production Possibilities Curve:

A production possibilities curve (PPC) is generated to show the maximum amount of a single good which may be produced when the production level of another commodity is given and the total amounts of inputs which are available for the production of both goods is also provided, and also when the technology of production is also provided. The production possibilities curve also displays the limits which are available on outputs of goods since the society does not also have limited resources. Moreover, the curve also shows the trade-off which the society has to bear if more of a single commodity is produced.

Expansion of human capital:

Expansion of human capital results from the increase in education, work-experience and on-job training. Further learning such as higher education is regarded as a human capital investment as a result of the benefits which are associated to them. The amount of education that an individual can acquire in a college impacts greatly the labor market experience. Education directly impacts the labor market through increasing the rate of productivity which in turn increases earning levels of the involved individuals.

The higher the level of education an individual has, the better the absorption capacity of information the individual possesses. In addition, an individual with higher education levels have a higher capability of acquiring new skills and also familiarizing with new technology which may be available in the industry at any time. Through the act of increasing human capital, workers will always enhance labor productivity as well as the capital which is used at work (Joint economic committee study, 2000).

Higher productivity levels are associated to high human capital which is as a result of increase of education levels in colleges. From this, a conclusion that there should be a ...

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