Lecture Notes 9-9-09

Lecture Notes 9-9-09 - Chapter 2 Production Possibilities...

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Production Possibilities Frontier (PPF): A graph that shows the combinations of two g oods the economy can possibly produce given the available resources and the available technology. Example: Two goods: computers and wheat One resource: labor (measured in hours) Economy has 50,000 labor hours per month Producing one computer requires 100 hours labor Producing one ton of wheat requires 10 hours labor Quantities are graphs in the PPF 1 input = straight line on PPF Points off the PPF Inside PPF, means unemployment, means you can do better. Points inside curve are considered INEFFICIENT (works unemployed, factories idle) Outside PPF, is INFEASIBLE , not possible On PPF, means FEASIBLE , and EFFICIENT - Moving along a PPF involves shifting resources from the production of one good to the other - The SLOPE of the PPF tells you the opportunity cost of one good in terms of the other The opportunity cost of whatever is on the x-axis is the SLOPE - Given PPF is for your current state of technology. With additional technology, the economy
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Lecture Notes 9-9-09 - Chapter 2 Production Possibilities...

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