The Production Possibilities Curve
A curve representing all possible production combinations of two goods that can be produced
Allows for more of everything.
Economic growth
A curve representing all possible production combinations of two goods that can be produced
Allows for more of everything.
The nation’s resources
Are fully and efficiently employed producing just these two goods or services.
Used are fixed over this period of time.
Is measured over a specified period of time.
Is fixed over this period of time.
The production
Used are fixed over this period of time.
Are fully and efficiently employed producing just these two goods or services.
Is measured over a specified period of time.
Is fixed over this period of time.
The quantity and quality of resources
Are fully and efficiently employed producing just these two goods or services.
Is measured over a specified period of time.
Used are fixed over this period of time.
Is fixed over this period of time.
The technology
Used are fixed over this period of time.
Is fixed over this period of time.
Is measured over a specified period of time.
Are fully and efficiently employed producing just these two goods or services.
3 assumptions of economic growth
The specialization based on the lowest opportunity cost.
-More resources or better quality. -Better technology. -Long time period. Economic Growth: more output, wealthier nation.
Between consumption goods and capital goods.
Trade off
The specialization based on the lowest opportunity cost.
Between consumption goods and capital goods.
-More resources or better quality. -Better technology. -Long time period. Economic Growth: more output, wealthier nation.
International trade
-More resources or better quality.-Better technology.-Long time period. Economic Growth: more output, wealthier nation.
Between consumption goods and capital goods.
The specialization based on the lowest opportunity cost.
PPC and Scarcity
Unemployment is represented by points being inside the PPC curve. All the points on the PPC symbolize a full employment.
The PPC can be viewed as a boundary that separates the attainable production combinations, on or inside the curve, from the unattainable points outside of the curve.
PPC and Unemployment
The PPC can be viewed as a boundary that separates the attainable production combinations, on or inside the curve, from the unattainable points outside of the curve.
Unemployment is represented by points being inside the PPC curve. All the points on the PPC symbolize a full employment.
Productive Efficiency
Occurs when an economy is producing the maximum output with given technology and resources. All points on the PPC are productively efficient.
Is concerned with the mix of goods and services most valued by consumers. Only one point on the PPC is allocatively efficient.
Allocative Efficiency
Is concerned with the mix of goods and services most valued by consumers. Only one point on the PPC is allocatively efficient.
Occurs when an economy is producing the maximum output with given technology and resources. All points on the PPC are productively efficient.
Opportunity Cost
Represented by the production of the alternative good.
As society attempts to produce more of a good, the opportunity cost of additional units generally increases.
Law of Increasing Relative Costs
Represented by the production of the alternative good.
As society attempts to produce more of a good, the opportunity cost of additional units generally increases.
Economic System
Private ownership of all property resources. Households and firms interact through a system of markets to answer the basic economic question. Private companies own the resources.
The social arrangements or institutional means through which resources are used to satisfy human wants.
Pure Capitalism
The social arrangements or institutional means through which resources are used to satisfy human wants.
Private ownership of all property resources. Households and firms interact through a system of markets to answer the basic economic question. Private companies own the resources.
Pure Command Economy
Public ownership of all property resources. Centralized government planning answers the basic economic operations. Production planning is done through 5-year plan. Government owns the resources.
Most economies fall between these two extreme cases. Decisions about how resources are used, are made partly by the private sector and partly by the public (government) sector. The resources are owned partly by the government and partly by the private sector.
Mixed Economy
Most economies fall between these two extreme cases. Decisions about how resources are used, are made partly by the private sector and partly by the public (government) sector. The resources are owned partly by the government and partly by the private sector.
Public ownership of all property resources. Centralized government planning answers the basic economic operations. Production planning is done through 5-year plan. Government owns the resources.
The Three Basic Economic Questions (resource allocation)
1. What and how much will be produced? 2. How will it be produced? 3. For whom will it be produced?
- Private property. - Profit. - Prices.
Three P of Capitalism
- Private property. - Profit. - Prices.
1. What and how much will be produced? 2. How will it be produced? 3. For whom will it be produced?
Features of Capitalism
Primary motive is self-interest. Firms attempt to maximize their own profit.
Two broad types of markets that exist in pure capitalism production.
The system is designed to serve the household in its consumer role, providing the services they desire at the lowest possible.
Consumer Sovereignty
Primary motive is self-interest. Firms attempt to maximize their own profit.
The system is designed to serve the household in its consumer role, providing the services they desire at the lowest possible.
Two broad types of markets that exist in pure capitalism production.
Market and Prices
Two broad types of markets that exist in pure capitalism production.
Primary motive is self-interest. Firms attempt to maximize their own profit.
The system is designed to serve the household in its consumer role, providing the services they desire at the lowest possible.
Pure Command Economy
What and how will it be produced? How will it be produced? For whom will it be produced?
What and how will it be produced? How will it be produced? For whom will it be produced?
Mixed Economy
What and how will it be produced? How will it be produced? For whom will it be produced?
What and how will it be produced? How will it be produced? For whom will it be produced?
International Trade
The opportunity cost for producing one more car.
Export vs. Import.
It is based on the opportunity cost.
Relative advantage
Export vs. Import.
It is based on the opportunity cost.
The opportunity cost for producing one more car.
Example
It is based on the opportunity cost.
The opportunity cost for producing one more car.
Export vs. Import.
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