2. The Production Possibilities Curve The PPC tells you the combination of goods that can be produced in an economy given the resources available. The economy is efficient when operating on the PPF CAPITAL GOODS CONSUMER GOODS Production Possibilities Frontier

3. The Production Possibilities Curve UNDERUTILIZATION: the area of underutilization is the area the economy is operating at when it is no using all of its resources EXAMPLES: High levels of unemployment, the school being closed during the overnight hours, a restaurant not using its entire grill space to cook CAPITAL GOODS CONSUMER GOODS Production Possibilities Frontier Area of UNDERUTILIZATION

4. The Production Possibilities Curve GROWTH: This is the area outside the PPF. In this area, the economy is growing. HOW GROWTH OCCURS: 1. Technology 2. Increase the quality of resources 3. Increase the quantity of resources CAPITAL GOODS CONSUMER GOODS Production Possibilities Frontier Area of UNDERUTILIZATION

5. Circular Flow Defined: graphical representation of the flow of money and goods and services throughout the economy

6. The Diagram PRODUCT MARKET BUSINESS HOUSEHOLDS FACTOR RESOURCE MARKET GOVERNMEN T Business Income Business Revenue Household Income Salaries, Rents, Interest Salaries, Rents, Interest Goods & Services Land, Labor, Capital Public Goods & Services Taxes

7. Business cycle PEAKS AND VALLEYS! Expansion PeakContraction Trough Expansion Peak Contraction Trough