Unit 1: Production Possibility Graphs

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Production Possibility Graphs (PPG or PPC(curve) or PPF(frontier):
- Alternate ways to use resources
- Each point on the graph has a trade off
- Also shows the most that society can produce if it uses every available resource to the best of its ability.


Productive efficiency vs. Allocative efficiency:
Pro- Products are being produced in the least costly way.
Alloc- The products being produced are the ones that are most desired by society.


Example of a Productive Graph:
Image result for Movements along the curve of production possibility graphs
A-F: On the curve
X: Inside the curve
Y: Outside the curve

Inside the curve: Attainable but inefficient.
Reasons: Unemployment, underemployment, war, famine, and depression/ recession.
On the curve: Attainable and efficient.
Reasons: Productive economy.
Outside the curve: Unattainable
Reasons: Technology and economic growth

Concave vs. Constant PPG:
-Concave: bowed out  
-Constant: the same
Image result for concave and constant ppg econ
Answer: Straight line: Corn, Bowed out: Cactus


Key assumptions:
**Full employment: everybody has a job, 80-90% factory capacity, 4 to 5% unemployment-
-Productive efficiency
-Fixed resources:Land, labor, capital
-Fixed state of technology
-No international trade
-Two goods produced
Why doesn't America have this?
1. Americans are lazy.
2. Retired people (baby boomers).
3. Disabled people


Image result for opportunity cost graphs 
- Opportunity cost: The 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.

Comments

  1. UnknownFebruary 5, 2018 at 8:23 PM

    In addition, a concave graph illustrates increasing opportunity cost with increased output of a good. it shows the relationship between giving up more of a good for another good that is preferred.

    ReplyDelete

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