key concepts production possibilities curve (ppc) is one model (graph) ppc shows the maximum goods...
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KEY CONCEPTS Production possibilities curve (PPC) is one model (graph)
PPC shows the maximum goods or services that can be produced from limited resources
also called production possibilities frontier
PPC PPC based on assumptions:
resources are fixed all resources are fully employed only two things can be produced technology is fixed
Analyzing Production Possibilities
Graphing the Possibilities
Production Possibilities Curve PPC runs between extremes of
producing only one item or the other
Data is plotted on a graph; lines joining points is PPC shows maximum number of one
item relative to other item PPC shows opportunity cost of
each choice more of one product means less of
the other
What We Learn from PPCs
Efficiency — producing the maximum amount of goods and services possible
Underutilization — producing fewer goods and services than possible
Why is the PPC a Curve?
Law of increasing opportunity costs as production switches from one product
to another, more resources needed to increase production of second product
Reasons for increasing cost of making more of one product need new resources, machines, factories must retrain workers
Costs paid by making less and less of other product
Let’s Look at Some Examples
PPC Practice
Changing Production Possibilities
A country’s supply of resources changes over time Example: U.S. in 1800s grew, gained
resources, workers, new technology new resources mean new production
possibilities beyond frontierIncreased production shown on PPC as shift
of curve outwardIncrease in total output called economic
growth
PPF—The Curve
What Does Guns And Butter Curve Mean? In a theoretical
economy with only two goods, a choice must be made between how much of each good to produce.
As an economy produces more guns (military spending) it must reduce its production of butter (food), and vice versa.
Video Clip: Individual and Society PPCs
Text book-pg 20 Q#5-9 PPC Problems
Microeconomics and Macroeconomics
Microeconomics Microeconomics examines specific, individual
elements in an economy prices, costs, profits, competition, consumer and
producer behavior Some Topics of Interest: business organization, labor
markets, environmental issues
Microeconomics and Macroeconomics
Macroeconomics Macroeconomics studies sectors — combination of all
individual units Includes consumer, business, public or government
sectors Macroeconomics studies national or global topics:
monetary system, business cycle, tax policies, international trade
Examples of Macro and Micro
Which is it?1. National Unemployment Figures lower.2. World Trade Organization Meets3. Shipbuilder Wins Navy Contract4. Cab Drivers on Strike!5. Gasoline Prices Jump 25 Cents