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Published byCory Blaise Cox Modified over 9 years ago
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Production Possibilities Curve Graphs to show alternative ways to use an economy ’ s productive resources
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Production Possibilities Economists will use graphs to analyze choices and trade-offs people make. Why? Graphs help us understand how one value relates to another value. Graphs- logical representation of figures Axes of graphs chart categories and facts
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Drawing a Production Possibilities Curve 1. Must decide which goods or services to examine- Simple graph-Chart 2. Country of Capeland Shoes vs Watermelons- figures 1.4 Vertical axis: shoes= 15 million Horizontal axis: watermelons= 21 million Opportunity cost thinking- smart???
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Another Way- ” Production Possibilities Frontier ” 3 rd alternative- figure 1.5 ” Benefit of this thinking? Diversify!!!! Thinking on “ margin ” - multiple possibilities and trade-offs Both shoes and watermelons The line drawn on the line graph is a “ production possibilities frontier ” OPTIONS about Capeland ’ s production
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Efficiency, Growth & Cost Graphs (Production possibilities) gives us a lot of information. Efficiency, growth,opportunity costs of production of one good or another Production Possibilities Frontier shows EFFICIENCY- maximizing output and use of resources in production. Not all economies are efficient
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Underutilization Graph 1.5- any point inside of the graph represents underutilization of resources and production of goods. Fewer overall goods produced in economy. Production of shoes and watermelon not at full potential
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Growth Production possibilities curve is a snapshot of of resources at a specific point in time Real world- resources are “ fluid ” constantly flowing and changing Quantitiy/Qualitiy of land, labor, resource Growth = shift to right or increae “ T ” Reasons???? See above LL&R Decrease????????? “ G ”
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Cost Not necessarily monetary Opportunity Cost- next best alternative COST- one option vs another or sacrifice COST figure 1.5 0 watermelons to 8 million tons = 1 million shoes (cost) ?? 8/1 2 nd step- 14/2?? Incease of only 6- result?
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Law of increasing costs As production switches from from one item to another, more and more resources are necessary to increase production of 2 nd item. Switching from shoes to watermelons costs something Shoes to watermelons show increasing costs Expense of tradeoff-watermelon to shoes
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Law of Increasing Costs Figure 1.7 In the example- why does cost increase? What are resources best suited for? Do resources & technology impact production choices? Resources, skill of workers, technology
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