Shape of the production possibilities curve the slope

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Shape of the production possibilities curve The slope of the PPF (straight line vs. bowed out curve) reflects the opportunity cost. The slope gives the trade-off between the two goods. It tells how the amount of one good that must be sacrificed in order to produce another unit of the other good. Opportunity costs We can obtain additional quantities of any desired good only by reducing the potential production of another good. Constant opportunity cost Resources are equally suited to produce either goods Straight line PPF For an example of constant opportunity cost, refer to the Powerpoint slide of Mikes Athletic Shoe Factory. Efficiency Maximum output of a good from the resources used in production. Points on the curve are efficient (in production). Points inside the PPF imply either: Inefficiency --actual output will be less than the potential output Unemployment -- if all available resources aren t used. Points outside the PPF are not feasible with the current resources and technology Return to the PowerPoint slide of Mikes Athletic Shoe Factory to see which points are efficient; points inside and points outside the PPF. Increasing Opportunity Costs The law of increasing opportunity cost says that we must give up ever- increasing quantities of other goods and services in order to get more of a particular good.
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Resources are not equally suited to produce either good Bowed-out PPF (concave to the origin) Examine PowerPoint slide for an economy producing only missiles and wheat. Think about why there will be increasing opportunity costs in the example. Economic Growth An increase in output (real GDP); an expansion of production possibilities Examine PowerPoint slide for an economy that experiences economic growth. Source of Economic Growth More Resources: Over time, population increases and we get more labor. Also, if we continue building factories and machinery, the stock of available capital will also increase. Better Resources: The quality of labor and capital can also increase if we train workers and pursue new technologies Advances in Technology: With better technology, our production possibilities increase. All of these changes will increase potential output and will shift the production possibilities curve outward. Microeconomics and Macroeconomics 1. Economics is studied on various levels. Definition of microeconomics: the study of how households and firms make decisions and how they interact in markets. Definition of macroeconomics: the study of economy-wide phenomena, including inflation, unemployment, and economic growth. Microeconomics and macroeconomics are closely intertwined because changes in the overall economy arise from the decisions of individual households and firms. Because microeconomics and macroeconomics address different questions, each field has its own set of models which are often taught in separate courses.
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  • Spring '12
  • Green
  • Economics, production possibilities, Economists

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