e Study us Production Possibilities Curve a curve

e. Study. us Production Possibilities Curve – a curve that shows the maximum combinations of two outputs an economy can produce in a given period of time with available resources and technology Example: Capital vs. Consumption Capital Opportunity Cost the best alternative sacrificed for a chosen alternative K 1 Marginal Analysis an examination of the effects of additions to or subtractions from a current situation K 0 C 1 C 0 Consumption copyright © michael. roberson@e. Study. us 2010, All rights reserved

e. Study. us Production Possibilities Curve Capital More Capital resulting in less Consumption Moving up or down the Production Possibilities Frontier illustrates “Opportunity Cost” of using more Capital or Consumption K 1 Unattainable K 0 C 1 C 0 Consumption Economically efficient points (full employment at potential GDP) Inefficient point – any point inside the PPF are inefficient (unemployment) Unattainable at the moment more capital or improved capital more labor or improved labor copyright © michael. roberson@e. Study. us 2010, All rights reserved

e. Study. us Increasing Opportunity Cost Capital In this range, society gives up 120 units of Capital to acquire 100 units of Consumption 120 In this range, society gives up 200 units of Capital to acquire 100 units of Consumption 200 100 Consumption • As society produces more of an asset it becomes increasingly difficult to acquire resources needed to make the asset • As society transfers resources from one asset to another production efficiencies decline copyright © michael. roberson@e. Study. us 2010, All rights reserved

e. Study. us Production Possibilities Curve Capital K 1 K 0 C 1 C 0 Consumption Acquiring more Capital has the opportunity cost of less Consumption which allows an economy to produce more Consumption and Capital items in the future. more capital or improved capital (technological change) more labor or improved labor (education) copyright © michael. roberson@e. Study. us 2010, All rights reserved

e. Study. us Sources of Economics Growth Increase in Labor Supply Increase in Capital Assets Improvement in Labor Productivity (Education) Labor Force Growth 1960 Fixed Private Net Capital Stock Equipment 65. 8 Structures 4. 6 1950 6. 2 1960 7. 7 1970 78. 7 1980 99. 3 1970 1, 146. 8 3, 951. 8 118. 8 1980 1, 919. 6 5, 216. 8 1990 2, 603. 8 6, 908. 4 1970 10. 7 2000 4, 204. 1 8, 162. 1 1980 16. 2 2008 5, 400. 0 9, 266. 5 1990 21. 3 2000 25. 6 2008 29. 4 2000 136. 9 2008 145. 4 Annual rate 1. 6% Annual rate 2, 860. 1 1940 1960 1990 666. 8 Percentage with 4 Years of College or More +4. 4% (Billions of 2005 Dollars) + 2. 4% copyright © michael. roberson@e. Study. us 2010, All rights reserved