Chap 2 - Chapter 2 Production Possibilities The Production...

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Unformatted text preview: Chapter 2 Production Possibilities 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. holmes/1B03_class Example: Macland Consider the economy of Macland. It produces only 2 goods: computers and cars. Maclands 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: COMPUTERS and CARS A 3000 0 B 2200 600 C 2000 700 D 0 1000 Note that this is only a partial table. Lets graph these combinations: PPF for Macland 3000 2200 2000 Computers Cars 600 700 1000 A B C D 3000 2200 2000 Computers Cars 600 700 1000 Production Possibilities Frontier, PPF A B C D 3000 2200 2000 Computers Cars K H B C 600 700 1000 Production Possibilities Frontier, PPF A D Unattainable Attainable but inefficient Points A, B, C and D on the diagram are productively efficient to produce these combos all resources are used, given the technology....
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Chap 2 - Chapter 2 Production Possibilities The Production...

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