1. Circular Flow Price of Oil $85 => $150 Affect on Circular Flow?
PRODUCT MARKET
Revenue
Spending
Price of Oil
$85 => $150
Goods
and services
sold
Goods and
services
bought
Affect on
Circular Flow?
FIRMS
HOUSEHOLDS
FACTOR Market
Factors of
production
Labor, land,
capital & entrepreneurship
Wages, rent,
and profit
Income
= Flow of inputs
and outputs
= Flow of dollars

2. GDP growth by quarter (3months)

3. Business Cycle ? 2000 2006 1990’s Technology Boom Housing Bubble
2001
2006
Housing Bubble
2012
Great Recession ?

4. Production Possibilities Frontier
1st Economic Graph

5. Production Possibilities Frontier
Concepts illustrated by PPF:
Efficiency, Trade-offs, Opportunity cost, Economic growth
Assumptions: country uses all of its resources to produce only 2 goods
2nd Economic Model 21

6. Productions Possibility Frontier
Constant Cost PPF Graph (straight line PPF)
Qty
Food
. C
Any point above line is Unobtainable in Short Run with existing technology & resources
(100, 0)
(0,100)
(50,50)
. B
. A
Any point on line is Efficient production of goods
Any point below line is Inefficient
Qty
Shelter

7. Which Society is more EFFICIENT?
Assumptions: -produce only 2 goods
-same resources for both countries
Country A
Country B

8. . A . B Straight Line PPF Slope = Opportunity Cost
Qty
Food
Opportunity Cost point A → B: 10
. B 5 5 10
Qty
Shelter

9. Increasing Opportunity
“Bowed” PPF Curve
Quantity
Houses .A
Move from Point A  B
Opportunity Cost of gaining 400 Cars is 100 Houses
Gain 1 Car  Give up 1/4 House
1,000
Move from Point B  C
Opportunity Cost of gaining 400 Cars is 200 Houses
Gain 1 Car  Give up 1/2 House B
900
Increasing Opportunity
Cost!
700 C
800
Quantity
400
1,000
Cars

10. Increasing vs. Constant Costs
Straight line PPF curves have
Constant Opportunity Costs
Bowed PPF curves have
Increasing Opportunity Costs

11. Increased Efficiency (productivity) will shift PPF curve outward
Economic Goal: Shift PPF outward
Qty of
Computers
Increased Efficiency (productivity)
will shift PPF curve outward
4,000
3,000
1,000
You get more from
same scarce resources!
2,300
650 G
2,200
600 A
Qty of
Cars

12. PPF Summary PPF Line represents all efficient production points
Points below PPF are inefficient (not using resources fully)
Points above PPF are not attainable in short run
Cannot attain it with existing technology & resources
“Bowed” PPF curves have increasing opportunity cost
Straight Line PPF curves have constant opportunity cost
Long Run goal is to shift the line outward (become more efficient)