UNIT 1: Production Posibbility Graph.

       Production possibility graph

           It shows alternative ways to use an economies resource.

                          Four assumptions of a PPG

1.      Two goods.

2.      Fixed resources (land, labor, capital, entrepreneurship)

3.      Fixed technology.

4.      Fixed employment of resources.

Vocabulary:

-Efficiency: we are using resources in such a way to maximize the production of goods and services.

-Allocative efficiency: the products that are being produced are the ones most desired by society.

-Productive efficiency: products are being produced in the least costly way and this is any point on the production possibility curve.

-Under utilization: using fewer resources that an economy is capable of using.

1.      Inside the Curve:

-          Attainable, but inefficient.

-          Underutilized.

• on the curve: Attainable and efficient

3.      Outside the curve:

-          (Unattainable) no production at the moment.

                     Three types of movement that occur within a (PPG)

1.     Inside the (ppc): it occurs when resources are unemployed and underemployed.

2.     Along the (ppc):  could shift down to C and C could move down to B.

What causes the PPC/PPF to shift?

·         Advance in technology.

·         Change in resources.

·         Change in the labor force.

·         Economic growth.

·         Natural disasters/war/famine.

·         More education: training (human capital)