Goods - Goods o Things that are produced we can actually...

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Goods o Things that are produced we can actually touch and use Services o Things that are produced that provide us with help, but no physical output is produced o Usually produced and consumed at the same time Inputs to production o Labor Input Number of individuals that could potentially work Assess the production skills/capabilities of workers (human capital) o Capital Anything that is man made and used to produce more goods and services Examples: machinery, trucks, highways, factories, tractors o Land Area of land available Natural resources that come from the land (oil, rivers, etc) o Entrepreneurship The ability and willingness on the part of people to figure out new and better products to meet the desires of consumers and new and better ways to produce o Technology Ways of combining available resources Assumptions o Countries have a fixed/given quantity of resources and technology o Each country can produce only 2 types of goods and services PPF Model [Production Possibilities Frontier] o What country could be producing if it used all of its available resources as efficiently as possible
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o The PPF separates possible from currently impossible production levels o To calculate opportunity cost at each particular point, calculate the derivative at the particular point o As production of manufactured goods increase, the opportunity cost of producing these goods also increase o As production of agriculture goods increase, the opportunity cost of producing these goods increase The reciprocal of the opportunity cost of producing more manufactured goods o Assumption [simplified] All resources are identical in production o Result PPF is a straight line Opportunity cost is constant o Production levels on the PPF are hypothetically possible, but not likely All the points we use to calculate opportunity cost; taking all labor and capital units to the most efficient use then you will be producing at that level o Position of points tells us whether or not (they) are at a efficient production level o Any point inside the PPF is a possible production level, but not efficient Most countries are producing at some level inside the PPF Key idea is how far away are you from most efficient use of resources Represents an inefficient use of allocation of our resources o Points on the PPF are possible, and represent an efficient allocation of our resources EXAMPLE o Brazil Land area: 8.5 million km2 Population: 193 million
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Literacy rate: 90% o U.S. Land area: 9.8 million km2
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Goods - Goods o Things that are produced we can actually...

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