}BÇ��u�H��F�]%O�\i����Z�|5~�I����w`tXa47$1���45����`�c�,q�a�\3������m������ �ζ�wK�~Ҧc����xR 0�p��� =��k|�?e���qY� ��g��Te��ج�`i�C����R:���"W[��rSEe}�Y$�O���W�o�`R�� ���~�{�i˛���x�u��U7��e.z]i�}���\ �������������qhS�;��rN��͐q�i.�}8slm �O~t��) L�ykh��{�?��ɜ��70�%Ly6j�������݋w +��&`|6��:? This is a result of transferring resources from the production of one good to another according to comparative advantage. I am given a chart that says apples then the row following this word has numbers: 15, 20, 25, 30, 35, 40, 45 in it. Figure 2.3 The Slope of a Production Possibilities Curve. Production Possibilities Curve – a graph that shows alternative ways to use an economy’s resources – does not show consumer satisfaction. opportunity cost. As we include more and more production units, the curve will become smoother and smoother. These intercepts tell us the maximum number of pairs of skis each plant can produce. It has an advantage not because it can produce more snowboards than the other plants (all the plants in this example are capable of producing up to 100 snowboards per month) but because it is the least productive plant for making skis. Plant 1 can produce 200 pairs of skis per month, Plant 2 can produce 100 pairs of skis at per month, and Plant 3 can produce 50 pairs. PPC/PPF DRAFT. The slope of the linear production possibilities curve in Figure 2.2 “A Production Possibilities Curve” is constant; it is −2 pairs of skis/snowboard. If it chooses to produce at point A, for example, it can produce FA units of food and CA units of clothing. If it fails to do that, it will operate inside the curve. To see this relationship more clearly, examine Figure 2.3 “The Slope of a Production Possibilities Curve”. Specialization means that an economy is producing the goods and services in which it has a comparative advantage. 6. a. A production possibilities curve can tell about B. 1. b. Other. This production possibilities curve includes 10 linear segments and is almost a smooth curve. You must produce everything you consume; you obtain nothing from anyone else. We have seen the law of increasing opportunity cost at work traveling from point A toward point D on the production possibilities curve in Figure 2.5 “The Combined Production Possibilities Curve for Alpine Sports”. It has two plants, Plant R and Plant S, at which it can produce these goods. (3 marks) Page 2 … Economists often use models such as the production possibilities model with graphs that show the general shapes of curves but that do not include specific numbers. p$����،5w,ߴ�G���c|��Vb�}3�Ǟ�GL�mzm�`.�2�x�����\=~����)����x7��-Nb�?FDE`g�2P3��g�d�;��� ���; ٷ��Wk��"g���3�&[�B/K�Pq�ATR T����>�)���? We can think of each of Ms. Ryder’s three plants as a miniature economy and analyze them using the production possibilities model. In that case, it produces no snowboards. We often think of the loss of jobs in terms of the workers; they have lost a chance to work and to earn income. The U.S. economy looked very healthy in the beginning of 1929. Production of all other goods and services falls by OA – OB units per period. Draw the production possibilities curve for Plant R. On a separate graph, draw the production possibilities curve for Plant S. Which plant has a comparative advantage in calculators? A. Specialization implies that an economy is producing the goods and services in which it has a comparative advantage. Two things could leave an economy operating at a point inside its production possibilities curve. The price you pay to purchase something ... What is the production possibilities curve? By 1933, more than 25% of the nation’s workers had lost their jobs. The slope of Plant 1’s production possibilities curve measures the rate at which Alpine Sports must give up ski production to produce additional snowboards. Here is the problem. A production possibility frontier is used to illustrate the concepts of opportunity cost, trade-offs and also show the effects of economic growth. Suppose Alpine Sports expands to 10 plants, each with a linear production possibilities curve. (}��]���穬�E���'. Explain that a production possibilities curve (production possibilities frontier) model may be used to show the concepts of scarcity, choice, opportunity cost and a situation of unemployed resources and inefficiency. To find this quantity, we add up the values at the vertical intercepts of each of the production possibilities curves in Figure 2.4 “Production Possibilities at Three Plants”. Question: The Law Of Increasing Opportunity Cost Is Reflected In The Shape Of The A Production Possibilities Curve Concave To The Origin. In business analysis, the production possibility frontier (PPF) is a curve illustrating the varying amounts of two products that can be produced when both … Chapter 1: Economics: The Study of Choice, Chapter 2: Confronting Scarcity: Choices in Production, 2.3 Applications of the Production Possibilities Model, Chapter 4: Applications of Demand and Supply, 4.2 Government Intervention in Market Prices: Price Floors and Price Ceilings, Chapter 5: Elasticity: A Measure of Response, 5.2 Responsiveness of Demand to Other Factors, Chapter 6: Markets, Maximizers, and Efficiency, Chapter 7: The Analysis of Consumer Choice, 7.3 Indifference Curve Analysis: An Alternative Approach to Understanding Consumer Choice, 8.1 Production Choices and Costs: The Short Run, 8.2 Production Choices and Costs: The Long Run, Chapter 9: Competitive Markets for Goods and Services, 9.2 Output Determination in the Short Run, Chapter 11: The World of Imperfect Competition, 11.1 Monopolistic Competition: Competition Among Many, 11.2 Oligopoly: Competition Among the Few, 11.3 Extensions of Imperfect Competition: Advertising and Price Discrimination, Chapter 12: Wages and Employment in Perfect Competition, Chapter 13: Interest Rates and the Markets for Capital and Natural Resources, Chapter 14: Imperfectly Competitive Markets for Factors of Production, 14.1 Price-Setting Buyers: The Case of Monopsony, Chapter 15: Public Finance and Public Choice, 15.1 The Role of Government in a Market Economy, Chapter 16: Antitrust Policy and Business Regulation, 16.1 Antitrust Laws and Their Interpretation, 16.2 Antitrust and Competitiveness in a Global Economy, 16.3 Regulation: Protecting People from the Market, Chapter 18: The Economics of the Environment, 18.1 Maximizing the Net Benefits of Pollution, Chapter 19: Inequality, Poverty, and Discrimination, Chapter 20: Macroeconomics: The Big Picture, 20.1 Growth of Real GDP and Business Cycles, Chapter 21: Measuring Total Output and Income, Chapter 22: Aggregate Demand and Aggregate Supply, 22.2 Aggregate Demand and Aggregate Supply: The Long Run and the Short Run, 22.3 Recessionary and Inflationary Gaps and Long-Run Macroeconomic Equilibrium, 23.2 Growth and the Long-Run Aggregate Supply Curve, Chapter 24: The Nature and Creation of Money, 24.2 The Banking System and Money Creation, Chapter 25: Financial Markets and the Economy, 25.1 The Bond and Foreign Exchange Markets, 25.2 Demand, Supply, and Equilibrium in the Money Market, 26.1 Monetary Policy in the United States, 26.2 Problems and Controversies of Monetary Policy, 26.3 Monetary Policy and the Equation of Exchange, 27.2 The Use of Fiscal Policy to Stabilize the Economy, Chapter 28: Consumption and the Aggregate Expenditures Model, 28.1 Determining the Level of Consumption, 28.3 Aggregate Expenditures and Aggregate Demand, Chapter 29: Investment and Economic Activity, Chapter 30: Net Exports and International Finance, 30.1 The International Sector: An Introduction, 31.2 Explaining Inflation–Unemployment Relationships, 31.3 Inflation and Unemployment in the Long Run, Chapter 32: A Brief History of Macroeconomic Thought and Policy, 32.1 The Great Depression and Keynesian Economics, 32.2 Keynesian Economics in the 1960s and 1970s, 32.3. We shall examine the significance of the bowed-out shape of the curve in the next section. Write the correct answer on the answer blanks, or underline the correct answer in parentheses. Instead of the bowed-out production possibilities curve ABCD, we get a bowed-in curve, AB′C′D. Hong Kong, with its huge population and tiny endowment of land, allocates virtually none of its land to agricultural use; that option would be too costly. 1 Answer. Answer: The Production Possibilities Curve (PPC) is a model used to show the tradeoffs associated with allocating resources between the production of two goods. The production possibilities curve is an illustration of what? E Upward-sloping Production Possibilities Curve. Production and employment fell. But the production possibilities model points to another loss: goods and services the economy could have produced that are not being produced. Suppose that Alpine Sports is producing 100 snowboards and 150 pairs of skis at point B′. So what is the production possibilities curve? Plant 3, though, is the least efficient of the three in ski production. The combined production possibilities curve for the firm’s three plants is shown in Figure 2.5 “The Combined Production Possibilities Curve for Alpine Sports”. The economy produces SA units of security and OA units of all other goods and services per period. Think about what life would be like without specialization. The bowed-out production possibilities curve for Alpine Sports illustrates the law of increasing opportunity cost. Could it still operate inside its production possibilities curve? The plant with the lowest opportunity cost of producing snowboards is Plant 3; its slope of −0.5 means that Ms. Ryder must give up half a pair of skis in that plant to produce an additional snowboard. Now consider what would happen if Ms. Ryder decided to produce 1 more snowboard per month. In radios? That will require shifting one of its plants out of ski production. Such specialization is typical in an economic system. While even smaller than the second plant, the third was primarily designed for snowboard production but could also produce skis. An economy achieves a point on its production possibilities curve only if it allocates its factors of production on the basis of comparative advantage. Answer: In this section, we shall assume that the economy operates on its production possibilities curve so that an increase in the production of one good in the model implies a reduction in the production of the other. 698 times. This time, however, imagine that Alpine Sports switches plants from skis to snowboards in numerical order: Plant 1 first, Plant 2 second, and then Plant 3. Economics | 1.4 Creating and Interpreting a Production Possibilities Curve Your task: using the data below, construct the production possibilities curve for the hypothetical country of Michigania. Please share your supplementary material! In drawing production possibilities curves for the economy, we shall generally assume they are smooth and “bowed out,” as in Panel (b). The law of increasing opportunity cost tells us that, as the economy moves along the production possibilities curve in the direction of more of one good, its opportunity cost will increase. The opportunity cost of an additional snowboard at each plant equals the absolute values of these slopes (that is, the number of pairs of skis that must be given up per snowboard). One, of course, was increased defense spending. Producing 100 snowboards at Plant 2 would leave Alpine Sports producing 200 snowboards and 200 pairs of skis per month, at point C. If the firm were to switch entirely to snowboard production, Plant 1 would be the last to switch because the cost of each snowboard there is 2 pairs of skis. 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