Econ: Production Possibilities Frontier


In economics, choices are explained in terms of trade-offs, or alternatives that are available whenever a decision is made. Combining trade-offs and opportunity cost is essential in making smart economic decisions. A trade-off is exchanging one thing for another. The cost of a trade-off is what you give up in order to get or do something else. Opportunity cost is the value of the next best alternative use of money, time, or resources given up for the alternative that was chosen.

Economists use a model called the production possibilities frontier, which is a diagram representing various combinations of goods and services to show the maximum combinations that can be produced from a fixed amount of resources in a given period of time. This curve can help determine how much of each item to produce, thus revealing the trade-offs and opportunity costs involved in each decision.

A production possibilities curve (PPC) shows the different rates of production of two goods or services that an economy can produce efficiently during a specified period of time with a limited quantity of productive resources or factors of production. The PPC shows the maximum amount of one product that can be obtained for any specified production level of the other product given the technology and the amount of factors of production available.

04 PPC full employ points

05 PPC inefficient point

06 PPC unattainable point


Homework:
2.5 How Can We Measure What We Gain and Lose When Making Choices (read pp.29-33)

Arrows-02-june

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