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Lec2 - EC 1 UCLA Dr Bresnock Lecture 2 Production...

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EC 1 UCLA Dr. Bresnock Lecture 2 Production Possibilities Curve (PPC) – shows the maximum combinations of two products that can be produced in a full employment, full production economy at a point in time . The following assumptions apply when constructing a PPC: It is a model of scarcity therefore it is the first model discussed in economics Problem of scarcity is what economics is based on Max combinations of two products that can be produced using “all of the resources” Freeze this max efficiency and get a curve One production possibility is a static point 1. Full employment and productive (or technical) efficiency 2. Fixed resources 3. Fixed technology 4. 2 different goods – for simplicity Ex. Pizza or Robots Pizza – land/labor intensive, Robots – capital intensive Production Alternatives Type of Product A B C D E Pizza 0 1 2 3 4 Robots 10 9 7 4 0 A, E are extremas All these points represent full use of resources As you’re moving A to E, the total opportunity cost would consist of everything Example Moving from B to C = marginal opportunity cost = 2 robots The information given in the table will plot one PPC given the above assumptions. Graph 1 Production Possibilities Curve 10 9 7 4 Points on the curve show productive efficiency are attainable
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