Section 2.2 Production Possibilities Frontier

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# Section 2.2 Production Possibilities Frontier - PowerPoint PPT Presentation

Section 2.2 Production Possibilities Frontier. ( 40 ). Efficiency &amp; 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)

Efficiency & Production Possibilities Frontier (PPF)

• 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 ________________________.

Simplifying Assumption:

• 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

PPF Model

• 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).

Lessons from the PPF

• 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

Lessons from the PPF (cont’d)

• 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.