(1/6/16) Production

Production Possibilities

Trade Offs-Alternative that we give up when we choose one course of action over another

Opportunity Cost-Form of trade off-next best alternative

Production Possibilities Curve(PPC)/Frontier(PPF)/Graph(PPG)-Shows an alternative ways to use a(n) economies resources

4 Assumptions of a PPG

1.Two goods- no more than 2 products

2. Fixed Resources-items does not change

3.Fixed technology-Info doesn't change

4.Full employment of resources

Efficiency-Using resources in such a way as to maximise the production of goods and services

Allocative Efficiency-The products that are being produced are the ones most desired by society

Productive Efficiency-Products are being produced in the least costly way (any point on the PPC)

Underutilization-Using fewer resources than an economy is capable of using
 A-Inside the curve B,C,D-On the Curve X-Outside the Curve
Inside the Curve-1.underutilization 2.attainable,but inefficient
On the Curve-Attainable and Efficient

Outside the Curve-Unattainable
(credit for image-http://resourcesforhistoryteachers.wikispaces.com/E.1.9)

3 Types of Movement that occur within the PPC-

1.Inside the PPC- Resources are unemployed or underemployed (Productive efficiency) Attainable but inefficient

2.Along the PPC-Attainable and efficient

3.Shifts of the PPC-when resources and technology change

What causes the PPC/PPF to Shift?

1.Technological change

2.▲ resources

3.▲ in the labor force

4.Economic growth

5.Natural disasters/war/famine

6;More education on training (human capital)