Possibility Production Graphs -
Possibility Production Graphs -
- also know as PPGs,PPCs (curve), PPFs (frontier)
- show alternate ways to uses resources
- each point in the graph reflects a trade-off
- shows the most that a society can produce if it uses every available resource to the best of its ability
- Key Assumptions -
- full employment - " everyone has a job", not possible due to laziness/old people/disabled people, 80 - 90% factory capacity/ 4 - 5% unemployment
- Productive Efficiency - economic level at which the economy can no longer produce additional amounts of a good without lowering the production level of another product
- Fixed Resources - land, labor, and capital
- Fixed state of technology
- No international trade
- Two goods produced
- Point E - inside the curve
- attainable but inefficient; under utilization
- unemployment, underemployment, war, famine, depression/recession
- Point B, C, D, A - on the curve
- attainable and efficient, desired point
- point A is only producing clothes while point B is producing only food, both doing so efficiently
- Point F - outside the curve
- unattainable
- technology, economic growth
- Movements of the PPG -
- inside the curve - inefficient production
- along the curve - efficient production
- Shifts of the curve - unattainable currently
- can shift inward
- can shift outward
- technology and economic growth required to reach this point
- Opportunity Cost - next best alternative that you must give up in order to get what you want
- Law of Increasing Opportunity Cost -
- as you produce more of one good, the opportunity cost (forgone production of another good) will increase
- as you produce more of one good, you will produce less the another
- Concave vs Constant PPG -
- Concave = bowed out
- Constant = same
- Productive Efficiency vs Allocative Efficiency -
- Productive Efficiency - products are being produced in the least costly way
- Allocative Efficiency - the products being produced are the ones that are most desired by society
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