1B03_CH_2 - Chapter 2 Production Possibilities The Pr oduct...

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Chapter 2 Production Possibilities
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  The Production Possibilities Frontier The  production   possibilities   frontier PPF ,  is a  graph that shows the combinations of output that  the economy can possibly produce given the  available factors of production and the available  production technology. It shows the best an economy can do if it uses all  its resources efficiently, given the current  technology. NOTE: the PPF is often called a production  possibilities boundary, PPB.
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Example: Macland Consider the economy of Macland. It produces  only 2 goods: computers and cars. Macland’s technology is given (it is what it is). Its resources are fixed. The following table shows combinations of  computers and cars Macland can produce if it  uses all its resources, given the current  technology:
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      COMPUTERS   and CARS    A        3000    0    B        2200   600    C        2000   700    D           0  1000 Note that this is only a partial table. Let’s graph these combinations:
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PPF for Macland 3000 2200 2000 Computers Cars 600 700 1000 A B C D
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3000 2200 2000 Computers Cars 600 700 1000 Production Possibilities Frontier, PPF A B C D
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3000 2200 2000 Computers Cars K H B C 600 700 1000 Production Possibilities Frontier, PPF A D Unattainable Attainable but inefficient
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Points A, B, C and D on the diagram are  productively efficient – to produce these combos  all resources are used, given the technology. Point H lies outside the PPF – it is unattainable. 
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This note was uploaded on 03/11/2011 for the course ECON 1B03 taught by Professor Hannahholmes during the Spring '08 term at McMaster University.

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1B03_CH_2 - Chapter 2 Production Possibilities The Pr oduct...

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