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Production Possibilities Feb 27, 2014
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
What’s another term for “Resources”? n. Factors of Production
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 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
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
End of Review
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 Services” often. n What’s the difference between the two?
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?
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 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 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 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 N C O Military buildup H D MILITARY OUTPUT B
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 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 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 used.
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 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 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 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 shifts outward.
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 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. A decrease in quality or quantity of a country’s n. Land n. Labor n. Capital n. Entrepreneurship n. Technology
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