Unit One: Chapters 1 and 2- Productions Possibilities Graphs

PRODUCTIONS POSSIBILITIES GRAPHS

Notes from (1/6/16-1/7/16)

VOCABULARY

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

-   "Settling"

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

Underutilization- Using fewer resources than the economy is capable of using

Allocative Efficiency- Products being produced are the ones desired by society

Productive Efficiency- Products being produced in the least costly way

NEED TO KNOWS

Production Possibilites Curve (PPC)

Production Possibilites Frontier (PPF)

Production Possibilities Graph (PPG)- Shows alternative ways to use an economy's resources

P.S.- PPC and PPF are the same thing!

FOUR ASSUMPTIONS OF THE PPG

1.) There are 2 goods: Cannot produce more than 2 goods at a time

2.) Fixed Resources: Quantities of factors of production stay the same

3.) Fixed Technology: Information and knowledge about resources stays the same

4.) Full Employment of Resources

Point A- Inside the Curve

-  Attainable, but Inefficient

-  Underutilization

Points B, C, D- On the Curve

-  Attainable, and Efficient

Point X- Outside the Curve

-  Unattainable

TYPES OF MOVEMENT IN PPC

1.) Inside the PPC- Means resources are unemployed or underemployed, Productive Efficiency 

2.) Along the PPC- Can shift along the curve, but cannot go IN or OUT

3.) Shifts of the PPC- When resources and technology change

CAUSES THE PPC/PPF TO SHIFT

1.) Technological Change
2.) Change in Resources
3.) Change in the Labor Force
4.) Economic Growth
5.) Natural Disasters/ War/ Famine
6.) More Education or Training (Human Capitol)


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