1 / 10

LO5

Production Possibilities Curve. More pizzas means fewer robots. Go from A to B Now go from B to C The law of increasing opportunity costs : as production of one good increases, the OC of producing an additional unit rises! Makes the PPC concave . Each pt. represents. 14 13 12 11

may
Download Presentation

LO5

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Production Possibilities Curve • More pizzas means fewer robots. • Go from A to B • Now go from B to C • The law of • increasing • opportunity costs: as production of one good increases, the OC of producing an additional unit rises! • Makes • the PPC concave. • Each pt. represents 14 13 12 11 10 9 8 7 6 5 4 3 2 1 A B Unattainable C Industrial Robots (thousands) D U Attainable E 0 1 2 3 4 5 6 7 8 9 Now look at p.12 Pizzas (hundred thousands) 1-1 LO5

  2. Optimal Allocation • Of all the attainable pizzas & robots, which is best? • ANY ECONOMIC ACTIVITY SHOULD BE EXPANDED IF MB > MC AND SHOULD BE REDUCED IF MC > MB!!! • We want to maximize satisfaction!!! So… • We want MB = MC.

  3. Optimal Allocation MC • When society gains, it is better off! • Net gains continue until 200,000 pizzas are produced! 15 10 5 0 a c MB = MC e Marginal Benefit & Marginal Cost b d MB 1 2 3 Quantity of Pizza 1-3 LO5

  4. A Growing Economy • What assumptions did we make about society before creating the production possibilities curve? • Let’s drop the quantity and quality assumptions… • More resources • Improved resource quality • Technological advances • ECONOMIC GROWTH!!!  1-4 LO6

  5. A Growing Economy Production Alternatives A' B' C' D' E' Type of Product Pizzas (in hundred thousands) 0 2 4 6 8 Industrial Robots (in thousands) 14 12 9 5 0 1-5 LO6

  6. A Growing Economy A’ 14 13 12 11 10 9 8 7 6 5 4 3 2 1 B’ Unattainable A Economic Growth B C’ C Industrial Robots D’ D Now Attainable Attainable E’ E 0 1 2 3 4 5 6 7 8 9 Pizzas 1-6 LO6

More Related