Production Possibilities Curve

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7 Terms

1
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production possibilities frontier

features of the model:

  • shows the tradeoff between the production of 2 different items and easily demonstrates the concepts of scarcity, choice, opportunity cost, and efficiency.

  • Shows the maximum combination of 2 types of outputs that can occur when/if all resources are being used efficiently and technology is fixed.

<p>features of the model: </p><ul><li><p>shows the tradeoff between the production of 2 different items and easily demonstrates the concepts of scarcity, choice, opportunity cost, and efficiency. </p><p></p></li><li><p><strong>Shows the maximum combination of 2 types of outputs that can occur when/if all resources are being used efficiently and technology is fixed.</strong></p></li></ul>
2
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Inverse relationship

- downward facing curve
why? Because the factors of production are scarce
aka if you make more of one, you have to make less of the other

3
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Productive efficiency

The economy is producing the maximum output for a given level of technology and resources
- all points on the curve of the PPF are productively efficient

4
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law of increasing opportunity cost

increasing quantities of one good can only be accomplished by sacrificing ever-increasing quantities of another good.

5
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Growth in PPF - how?

There is an increase in the quality and/or the quantity of the factors of production

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Destruction of FOP leads to?

A negative shift in the PPF

7
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Straight line PPF

constant opportunity cost
- factors of production for both are largely the same