mankiw-ch2 cont-1.and Ch.3

# mankiw-ch2 cont-1.and Ch.3 - Page 1 of 5 3 Mankiw Ch.2...

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3 Mankiw Ch.2 Contd and 3 An example of a model: Production Possibilities Frontier (PPF) PPF is a graph/table that shows the maximum possible combinations of outputs that can be produced from given inputs Simplifying assumptions: Assume the economy produces just 2 goods Assume that technology and the quantity of factors (inputs such as Example: A farmer has a 10 acre field and can grow either wheat or barley on it. The only input is land. He has the following possible combinations: Wheat 40 30 20 10 0 Barley 0 5 10 15 20 Draw the PPF with Wheat on vertical axis. Note that this is a straight line. Any point on the PPF is said to be efficient ÷ economy is getting the most it can given the fixed resources & technology ÷ there are many possible efficient combinations Inside the PPF is inefficient Page 1 of 5

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÷ can produce more of one good without producing less of the other ÷ arises from unemployed resources or inefficient management Points outside the PPF are currently unavailable PPF can be increased by economic growth which shifts the curve outward - growth can come from more/better inputs like capital & labour or from better technology/organization
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## This note was uploaded on 10/02/2011 for the course ECON 1B03 taught by Professor Hannahholmes during the Spring '08 term at McMaster University.

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mankiw-ch2 cont-1.and Ch.3 - Page 1 of 5 3 Mankiw Ch.2...

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