Production 1/6/16

Production Possibilities Curve/Graph (PPC/PPG)

• Trade-offs: alternative that we give up when we choose one course of action over another
• Opportunity-cost: next best alternative
• Efficientcy: using resources in such a way as to maximize production of goods and services
• Allocative Efficiency: products being produced are the ones that are most desired by society
• Productive Efficiency: products being produced in the least costly way. (any point on the production possibility curve)
• Underutilization: using fewer resources than an economy is capable of using

Production Possibilities Curve: shows alternative ways to use economy's resources

  

(4) Assumptions:

• Two goods
• Fixed resources
• Fixed technology
• Full employment of resources

3 Types of Movement Occur within PPC

Inside PPC: resources unemployed, resources underemployed, and/or productive efficientcy. attainable, INEFFICIENT

Along PPC: attainable, but EFFICIENT

Shifts of the PPC: when resources and technology change

What causes the PPC/PPG to shift?

• technology change
• change in resources
• change in labor force
• economic growth
• national disasters/war/famine
• more education or training

MAY THE FORCE BE WITH YOU