September 4 - Resources are fixed Technology fixed 2 good...

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September 4, 2006 Production and possibilities frontiers Review session every Tue. Night in Morton 20 @ 7pm….see syllabus International (Other economies) S + T + IM Withdrawals I + G + EX Injections Some of the transactions and expenditures that we make, or the goods and services we produce are used overseas by other countries. This makes the simple circular flow much more complex. We face a world of scarcity: the resources given us are limited. Wants of the economic system are not limited. The only way to deal with this is to make choices Production possibilities help us to understand choice I the economic system. SEE PRODUCTION POSSIBILITES AND COMPARATIVE ADVANTAGE HANDOUT Assumptions Full employment – The given technology is used to it’s utmost
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Unformatted text preview: Resources are fixed Technology fixed 2 good Convex graph suggests that costs are increasing Straight line graph suggests that the costs are constant Concave graph suggests that costs are decreasing Capital manmade aids to production Changes In Capital Stock Gross Investment: total amount of capital produced Net Investment: Amount of capital available after replacing capital used up in production Can Cause production possibilities boundaries to move out: Positive net investment Changes in any resource Increases in the resource available Absolute Advantage Adam Smith (1776) wealth of nations Comparative Advantage David Ricardo (1817) Principals of Economics...
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September 4 - Resources are fixed Technology fixed 2 good...

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