2. Production Possibilities Frontier Production Possibilities Frontier (PPF) shows all possible combinations of two products (Consumer Goods and Capital Goods) that a country can produce with available technology and full employment of all resources. Capital Goods Consumer Goods PPF 0

3. Production Possibilities

4. A Production Possibility Frontier Suppose that the production possibility frontier can be represented by To find the slope, we can solve for Y If we differentiate

5. A Production Possibility Frontier When X=5, Y=13.2, the slope= -2(5)/13.2= -.76 When X=10, Y=5, the slope= -2(10)/5= -4 The slope rises as X rises.

6. Indifference Curves An Indifference Curve represents all combinations of market baskets that provide a consumer with the same level of satisfaction.

7. Characteristics of Indifference Curves 4 Indifference curves are continuous and every- where dense; 4 Indifference curves slope downward to the right; and 4 Indifference curves do not intersect; C K 0 U1U1 U2U2

8. General Equilibrium PPF U K C E KEKE CECE O