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# Section 2.2 Production Possibilities Frontier - PowerPoint PPT Presentation

Section 2.2 Production Possibilities Frontier. ( 40 ). Efficiency & Production Possibilities Frontier (PPF) How much can an economy produce with the resources available? What are the economy’s production capabilities?

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### Section 2.2 Production Possibilities Frontier

(40)

• How much can an economy produce with the resources available?

• What are the economy’s production capabilities?

• To help consider these questions you need a simple model of the economy beginning with some ________________________.

• The model limits output to two broad classes of products _____________ and ______________.

• Production during a given period- in this case a _______.

• The resources available in the economy are fixed in both ___________& _______________ .

• The ___________________ does not change.

The point of following the assumptions is to _________the economy’s resources and technology for a period of time to focus on what can possibly be produced during that time

• Production Possibilities Frontier shows the possible combinations of the two types of goods that can be produced when available resources are employed ___________________ .

• Efficiency means producing the _______________possible output from available resources.

• Points during the curve between A & F identify possible ________________of the two goods that can be produced when the economy’s resources are used efficiently.

• The model can also be used to show inefficient combinations and unattainable combinations.

• Shape of the PPF

• Any movement ____________the PPF involves giving up some of one good to get more of the other

• The law ___________________________states that each additional increment of one good requires the economy to give up successively larger amounts of the other good

• Shifts of the PPF

• PPF assumes resources and technology are _____________; over time shape of the PPF can shift outward or inward as resources levels and technology change

• An ________________shift of the PPF reflects economic growth which is an _________________of the economy’s production possibilities or ability to produce.

• Changes in Resource Availability

• If the _________force increases, or an increase of the availability of other _____________or new _____________that employs resources more efficiently = outward shift

• In contrast a decrease in the availability or quality of resources shifts the PPF _________________.

• Increases in stock of capital goods

• The more capital goods an economy produces during one period the more ________it can produce in the next period.

• Thus, producing more _______________goods this period (building more factories) shifts the economies PPF outward for the next period.

• Technological Change

• Another change that could shift the economy’s PPF outward is a ___________________discovery that employs available resources more efficiently (for example, the internet).

• The first is ______________.

• The PPF demonstrates the efficient combinations of output given the economy’s resources and technology

• The second is ______________.

• Given the stock of resources and technology an economy can only produce so much

• The third is _________________.

• As the economy produces more of one good it must produce less of the other good; the trade-off demonstrates opportunity cost

• The ___________out shape of the PPF reflects the law of increasing opportunity cost.

• An ________________shift of the PPF reflects economic growth.

• Because society must choose a specific combination of output along the PPF, the PPF emphasizes the need for ________________.

• Each point along the economy’s production possibilities frontier is an ____________combination of output.