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Production Possibilities Feb 27, 2014

Production Possibilities Feb 27, 2014

Review Questions I do this the after nearly every discussion/lecture n You CANNOT read

Review Questions I do this the after nearly every discussion/lecture n You CANNOT read from your notes to answer them n Expect it n Prepare for it n Review the previous notes before class n EASY class participation points n

Review Questions

Review Questions

What’s another term for “Resources”? n. Factors of Production

What’s another term for “Resources”? n. Factors of Production

Give me 1 of the 5 types of resources n Land n Labor n

Give me 1 of the 5 types of resources n Land n Labor n Capital n Technology n Entrepreneurship

What’s the basic/core problem? n. SCARCITY!!!!! n. Unlimited wants and limited resources

What’s the basic/core problem? n. SCARCITY!!!!! n. Unlimited wants and limited resources

What’s the formal definition for “Economics”? n The study of how people and nations

What’s the formal definition for “Economics”? n The study of how people and nations make choices about how to use their scarce resources to fill their needs and wants

Trade-Offs n. All of the alternatives when a decision is made

Trade-Offs n. All of the alternatives when a decision is made

Opportunity Costs n. The next best alternative that had to be given up for

Opportunity Costs n. The next best alternative that had to be given up for the alternative that was chosen.

Opportunity Benefit n. What is gained when a decision is made

Opportunity Benefit n. What is gained when a decision is made

End of Review

End of Review

3 basic/core issues/economic questions that all economies have to address n WHAT to produce

3 basic/core issues/economic questions that all economies have to address n WHAT to produce with our limited resources n HOW to produce the goods and services n FOR WHOM the goods and services should be produced

Goods Versus Services n In this class, we will use the terms “Goods and

Goods Versus Services n In this class, we will use the terms “Goods and Services” often. n What’s the difference between the two?

n Tangible Goods items that businesses produce and/or sell n Examples?

n Tangible Goods items that businesses produce and/or sell n Examples?

Services n Non-tangible work that businesses complete in exchange for money n Examples?

Services n Non-tangible work that businesses complete in exchange for money n Examples?

Production Possibilities nthe alternative combination of final goods & services that could be produced

Production Possibilities nthe alternative combination of final goods & services that could be produced using all of a country’s resources & tech.

OUTPUT OF TRUCKS The Production Possibilities Curve 5 A B 4 C 3 D

OUTPUT OF TRUCKS The Production Possibilities Curve 5 A B 4 C 3 D 2 E 1 F 0 1 2 3 OUTPUT OF TANKS 4 5

Production Possibilities Illustrates The Principle of Opportunity costs – we n can obtain additional

Production Possibilities Illustrates The Principle of Opportunity costs – we n can obtain additional quantities of any desired good only by reducing the potential production of another good.

OUTPUT OF TRUCKS 5 A Step 1: give up one truck B 4 3

OUTPUT OF TRUCKS 5 A Step 1: give up one truck B 4 3 Step 2: get two tanks Step 3: give up another truck C Step 4: get one more tank 2 D E 1 0 1 2 3 4 OUTPUT OF TANKS 5 F

FOOD OUTPUT The Cost of North Korea’s Military A G P Reduced food output

FOOD OUTPUT The Cost of North Korea’s Military A G P Reduced food output N C O Military buildup H D MILITARY OUTPUT B

The Military Share of Output 16. 3 Percent of Output Allocated to Military ea

The Military Share of Output 16. 3 Percent of Output Allocated to Military ea a bi or. K N ud i. A ra na hi Sa C ni a os B SA U ea or S. K di a In an y G er m ad a an C pa n Ja ic o ex M Ja m ai ca 0. 5 1. 2 1. 0 0. 9 2. 8 2. 7 4. 1 3. 8 3. 4 12. 0

Efficiency n Efficiency means getting the maximum output of a good from the resources

Efficiency n Efficiency means getting the maximum output of a good from the resources used in production. n Every point ON a production possibilities curve is EFFICIENT.

n. A Inefficiency production possibilities curve shows potential output, not necessarily actual output. n

n. A Inefficiency production possibilities curve shows potential output, not necessarily actual output. n If we are inefficient, actual output will be less than the potential output.

n. Countries may end up inside their production possibilities curve if resources are inefficiently

n. Countries may end up inside their production possibilities curve if resources are inefficiently used.

OUTPUT OF TRUCKS Inefficiency 5 A 4 B 3 Y 2 C Inefficiency 1

OUTPUT OF TRUCKS Inefficiency 5 A 4 B 3 Y 2 C Inefficiency 1 0 1 2 3 4 OUTPUT OF TANKS 5

point outside the production possibilities curve suggests that we could get more goods than

point outside the production possibilities curve suggests that we could get more goods than we are capable of producing! n Is this possible? ! n. A

OUTPUT OF TRUCKS Economic Growth 5 A X Currently not attainable B 4 C

OUTPUT OF TRUCKS Economic Growth 5 A X Currently not attainable B 4 C 3 2 1 0 1 2 3 4 OUTPUT OF TANKS 5

Economic Growth An expansion of production possibilities. n How? n n An increase in

Economic Growth An expansion of production possibilities. n How? n n An increase in the quantity and/or quality of a country’s factors of production n. Land n. Labor n. Capital n. Entrepreneurship n. Technology

Economic Growth • When economic growth occurs. . . • The production possibilities curve

Economic Growth • When economic growth occurs. . . • The production possibilities curve shifts outward.

OUTPUT OF TRUCKS Economic Growth 0 PP 2 PP 1 OUTPUT OF TANKS

OUTPUT OF TRUCKS Economic Growth 0 PP 2 PP 1 OUTPUT OF TANKS

n What would have to occur for a country’s PPC to shift outward? n

n What would have to occur for a country’s PPC to shift outward? n An increase in quality or quantity of a country’s n. Land n. Labor n. Capital n. Entrepreneurship n. Technology

n What would have to occur for a country’s PPC to shift inward? n.

n What would have to occur for a country’s PPC to shift inward? n. A decrease in quality or quantity of a country’s n. Land n. Labor n. Capital n. Entrepreneurship n. Technology

Neatly & Somewhat Small, write the job that you decided to take

Neatly & Somewhat Small, write the job that you decided to take