Transcript ppc review
PRODUCTION POSSIBILITIES CURVE 4 Assumptions of the Model 1. Full Employment 2. Fixed Resources 3. Fixed Technology 4. Two Goods UNDER or BEYOND the Curve ◦ UNDER the curve is attainable by the modeled economy—but not efficient. ◦ Unemployment, idle resources* ◦ BEYOND the curve is unattainable with current resources. Constant Opportunity Cost ◦ Curve is a straight line…constant slope. Ex- red/blue m&ms, squares and triangles Increasing Opportunity Cost Shifts in the Production Possibility Curve ◦Society can produce more output if: ◦ Technology is improved. ◦ More resources are discovered. ◦ Economic institutions get better at fulfilling our wants. Economic GrowthProduction Economic The economy growth can results now in is initially at point an(20 produce outward shift of everything. the PPF A fishmore and 25of coconuts), it can production move to point E (25 because possibilities are expanded. fish and 30 coconuts). Economic Growth ◦ Illustrated both in overall performance, or by sector. ◦ Overall = both intercepts increase ◦ Sector = one variable of production increases, one intercept increase Result from new technology, improved labor, or more capital Shifts in the Production Possibility Curve Neutral Technological Change Butter C A 0 B D Guns Shifts in the Production Possibility Curve Biased Technological Change Butter C B 0 A Guns Fish and Fruit PPC Fish 12 10 8 6 4 2 5 10 15 20 25 30 Fruit Combinations ◦ 9 fish and 13 fruit Attainable ◦ 10 fish and 13 fruit Unattainable ◦ 7 fish and 18 fruit Attainable Maximum Efficiency ◦ 11 fish and 0 fruit Efficient ◦ 10 fish and 7 fruit Efficient ◦ 4 fish and 20 fruit NOT Efficient Movies and Books PPC Movies 1. What is the opportunity cost to moving from point A to point B? 2. What is the opportunity cost of moving from point C to point B? 3. What does point Z represent? 1000 800 600 A B 400 200 C Z D 200 40 0 600 800 1000 Books (per month) Production Possibilities Curve: Capital Goods and Consumer Goods Suppose Supposeathere massive newisgovernment sources comes Suppose anew major into of oil power and coal andbreakthrough are forbids found thewithin use technological in of the automated the economy, machinery and there and are modern consumer-goods industry, and the production major technological techniques innovations in all new technology is widely adopted. industries. in both industries. Which curve Which in curve the Which curve in the diagram would diagram in the diagram would represent would represent the new represent the new production production the new production possibilities possibilities curve? possibilities curve? curve? Shifts along the Curve 1. What would cause the production possibilities curve to shift from the original curve (XX’) to the new curve (YY’)? 2. Why might a government implement policy to move the economy from Point B to Point A? ◦ 1) Which of the following would not shift an economy's PPC? a) An increase in population. b) Doubling the amount of capital in the economy. c) An increase in the money supply. d) A technological advance. 2) Efficiency along the PPC implies, a) Goods are produced quickly. b) The state of technology is maximized. c) In order to get more of a good, some of another must be given up. d) Goods are distributed equitably. 3) A PPC shows, a) The best combination of goods to produce. b) The plans for increasing output in the short run. c) What can be produced with various combinations of resources. d) Resources are constrained by choices. 4) An economy has a constant cost PPC. What do you know about the slope? a) A straight line. b) Bowed in. c) Bowed out. d) Convex to origin. ◦ 5) What determines the opportunity cost along a PPC? a) The kinds of goods being produced. b) The slope of the PPC. c) Choices made by the economy. d) The area under the PPC. 6) Which of the following are assumptions underlying the PPC? a) Only two goods are produced. b) Technology, population, and capital are variable. c) Prices determine the position on the PPC. d) All the above. 7) What statement below implies that a PPC will be an increasing cost curve? a) Resources are scarce. b) Most resources are more productive in certain uses than others. c) Underemployment of productive resources. d) Diminishing marginal returns to scale.