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Production Possibilities Curves

Production Possibilities Curves. 1-3. Why the Curve??. It shows alternative ways to use an economy’s resources. Production Possibilities Frontier. Shows combinations of the production of two products **Represents an economy working at most efficient levels

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Production Possibilities Curves

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  1. Production Possibilities Curves 1-3

  2. Why the Curve?? • It shows alternative ways to use an economy’s resources

  3. Production Possibilities Frontier • Shows combinations of the production of two products • **Represents an economy working at most efficient levels • Making more of one product means less of another--------Scarcity of resources.

  4. Efficiency and Growth • Underutilization: any point inside the frontier. Not using all of economies available resources • Shift to the right: more resources available and growth occurs • Shift to the left: resources lost and production capability decreases

  5. Law of Increasing Cost • As production switches from one item to another, more and more resources are necessary to increase production of the second item • Figure 1.7(pg. 17)

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