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Production Possibilities Curve
Transcript of Production Possibilities Curve
What's the difference?
How do we determine what to produce and how much to produce?
WHAT IS EFFICIENCY?
Trade-offs & Opportunity Costs
What is a PPC/PPF?
A trade off includes...
all the alternatives that we give up whenever we choose one course of action over others.
An opportunity cost is...
the most desirable alternative given up as a result of a decision.
A production possibilities table lists the different combinations of two products that can be produced with specific sets of resources, assuming full employment.
A production possibilities curve displays the different combinations of goods and services that society can produce in a fully employed economy, assuming a fixed availability of supplies of resources and fixed technology.
The slope of the PPC shows you the various combinations of resources between two goods.
Monday, January 12, 2015
Vol XCIII, No. 311
Every choice bears a cost to society.
KEY POINTS TO REMEMBER...
Each point represents a specific combination of goods that can be produced given full employment of resources.
Production “Possibilities” Table
Goods are scarce and society must use its resources efficiently.
Ours is a world of scarcity. A situation of scarcity is one in which goods are limited relative to desires.
Production Possibilities Curve
NOW GRAPH IT
Put bikes on y-axis and computers on x-axis
it should look like this...
1. The opportunity cost of moving from A to B is...
2. The opportunity cost of moving from B to D is...
3. The opportunity cost of moving from D to B is...
4. The opportunity cost of moving from E to D is...
5. What can you say about point G...
TYPICAL PPC GRAPH
The marginal opportunity cost of guns in terms of butter is increasing as we move down the PPC
The PPF is typically bowed-out or linear.
To keep it simple, let's initially assume
FULL EMPLOYMENT: the economy is employing all of its available resources.
FIXED RESOURCES: the quantity and quality of the factors of production are fixed.
FIXED TECHNOLOGY: the state of technology is constant.
TWO GOODS: the economy is producing only two goods.
Consumer goods and Capital goods
Input – an input is what you what you put into a production process to achieve an output.
Output – an output is simply a result of an activity.
inputs and outputs
Economists use the scientific approach.
Every human society--- whether it is an advanced industrial nation, a centrally planned economy, or an isolated tribal nation--- must confront and resolve three fundamental economic problems.
Every society must have a way of determining what commodities are produced, how these goods are made, and for whom are they produced.
Although there is no single pattern of economic development, and the evolution of culture will differ around the world, freedom from hunger, disease, and the elements is a universal human aspiration.