It is easy to see that increasing costs give the

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It is easy to see that increasing costs give the production possibility frontier its curvature. But since a production possibility frontier need not be curved, but can be a straight line, increasing costs need not occur. SCARCITY UNDER THE PPF Scarcity is the condition where wants outstrip the resources available to satisfy those wants. The finiteness of resources is graphically portrayed by the PPF itself. The frontier tells us, “At this point in time, that is as far as society can go. It is limited to choosing and combination of two goods on the frontier or below it.” Choices Choice is visible under the PPF once we realize that an economy can operate at only one point at a time. Can only produce one combination. Needs society to figure what to produce. Opportunity cost under the PPF Opportunity cost becomes visible as we move from one point to another on the PPF. Lose of production. THE FRONTIER SEPARATES TWO REGIONS Attainable region Which consists of the points on the PPF and all points below it. Unattainable region Which consists of the points above the PPF. Scarcity implies that some things are attainable and some things are unattainable. Are most PPFs curved? Do increasing costs occur often? Yes – the reason is that most resources are simply bettered suited for the production of some goods than others. E.g. some land is better suited for the production of wheat than corn. Some individuals are better suited for the production of cars than tomatoes.
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Secondly: In the early stages of production of a good, it is likely that the resources best suited to its production are used and that as production increases more and more less- well-suited resources and used. UNDERSTANDING THE PPF IN THE REAL WORLD A model economy Instead of looking at the real-world economy with all its complexity and detail, we will build a model of an economy. The model will have features that are essential to understanding the real economy but we will ignore most of reality’s immense detail. This model economy will be simpler in three important ways: 1) Everything that is produced is also consumed so that in our model, capital resources neither good nor shrink. (Later we will examine what happens if we consume less than we produce and add to capital resource.) 2) There are only two goods, computer & television (in the real world we use our scarce resources to produce countless goods and services.) 3) There is only one person, Jane, who lives on a deserted island and has no dealings with other people. (Later we will see what happens when Jane’s island economy has links with another economy.) ECONOMIC GROWTH Economic Growth The increased productive capabilities of a society; it is illustrated by a shift outward in the PPF. Sustainable growth over time.
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