ECO1207 - CHAPTER 2 - Chapter 2 Production Possibilities...

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Chapter 2 Production Possibilities Curve 1
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By the end of this chapter, students should be able to: Explain and sketch the production possibilities curve. Identify the factors that affect the location of the production possibilities curve. Explain the law increasing opportunity costs. Objectives 2
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What is a Production Possibilities Curve? 3
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A production possibilities curve (PPC) is a curve which shows the combinations of two goods and services that can be produced whilst using all the available factor resources efficiently. 4
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In sketching the PPC, these assumptions are made for simplification: Full employment Fixed resources Fixed technology Two goods Assumptions 5
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What happens at point C? Shows the waste of resources/uneffiency. What happens at point D? Unable to produce because unlimited resources. 6 SCARCITY UNEMPLOYMENT
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Unformatted text preview: Shift of the Production Possibilities Curve 7 When the PPC shifts outward, this means that there is economic growth (allowing the economy to have larger quantities of both types of goods). Factors that can cause this situation: (a) Increase in resources. (b) Improvement is resource quality. (c) Technological advancement. 8 Opportunity cost ◦ The cost of what you are giving up to do what you are currently doing. Law of Increasing Opportunity Costs ◦ As production of one good is increased, the opportunity cost to produce the additional good will increase. 9 10 Law of Increasing Opportunity Costs Bundle Sheds PuFs Opportunity Costs A 450 B 1 445 C 2 437 D 3 425 E 4 410 F 5 390 G 6 360 H 7 320 I 8 270 J 9 200 K 10 11 Law of Increasing Opportunity Costs...
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  • Fall '15
  • professor
  • Economics, possibilities curve

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