Economics chapter 2

In an economy, only one combination of goods is productive efficient. True or false? Explain your answer.

False. There are numerous productive efficient points, all of which lie on the PPF.

what does productive inefficiency effect?

Inefficient points lie inside the ppf. Productive inefficiency implies that more of one good can be produced without any less of another good being produced.

What would the graph look like for increasing opportunity cost of coffee makers

It would bowed outward because producing increases as more coffee makers are produced.

attainable production

points on and inside the PPF . The economy has sufficient resources for this level of production.

unattainable production

points outside the ppf. The economy does not have sufficient resources for this level of production.

economic growth

refers to the increased productive capabilities of an economy.

choice

represented by our having to decide among the many attainable combinations of the two goods. For example, will we choose the combination of goods represented by point A

what effects economic growth?

technology and resources

productive inefficiency

the condition where less than the maximum output is produced with given resources and technology.

productive efficiency

the condition where the maximum output is produced with given resources and technology

Scarcity limits the economy to producing at levels on or below the ppf.

true

What does the law of increasing costs have to do with a bowed-outward PPF?

A bowed-outward PPF is representative of increasing costs. In short, the PPF would not be bowed outward if increasing costs did not exist.

What does PPF line look like when opportunity cost is constant?

A straight line

What does a straight-line production possibilities frontier (PPF) represent? What does a bowed-outward PPF represent?

A straight-line PPF represents constant opportunity costs between two goods. For example, for every unit of X produced, one unit of Y is forfeited. A bowed-outward PPF represents increasing opportunity costs. For example, we may have to forfeit one unit of X to produce the eleventh unit of Y, but we have to forfeit two units of X to produce the one hundredth unit of Y.

Production Possibilities Frontier (PPF)

Represents the possible combinations of two goods that can be produced in a certain period of time under the conditions of a given state of technology and fully employed resources.

Why do most goods exhibit increasing opportunity costs?

Resources are specialized. (people (labor) have varying abilities. Not all resources (labor, land, machinery, etc..), are equally suited for the production of different goods.)

A politician says, "If you elect me, we can get more of everything we want." Under what condition(s) is the politician telling the truth?

The first condition is that the economy is currently operating below its PPF. It is possible to move from a point below the PPF to a point on the PPF and get more of all goods. The second condition is that the economy's PPF shifts outward.

Increasing Opportunity Cost

The opportunity cost of a good increases as more of the good is produced (bowed- outears (concave downward ppf), the production resources are not equally suited for both goods (resources are specialized)).

Constant Opportunity Cost

The opportunity cost of a good remains the same regardless of how much of the good is produced. ( straight line ppf, the production resources are equally suited for both goods (resources are specialized)).

What do you use a simple two person ppf model for?

We can use a two-person model to show the advantages of specialization and trade. An economist would advise each person in this model to produce the good that he or she can produce at a lower cost. A person (country) who can produce a good at a lower cost than another person (country) is said to have a comparative advantage in the production of the good. Individuals and countries can make themselves better off by specializing in the production of goods that they have a comparative advantage in, and then trading for other goods.

On beyond the ppf?

What holds for individuals holds for countries too. For example, if both Americans and Brazilians specialize in producing those goods for which they have a comparative advantage, and then trade some of those goods for the others' goods, both Americans and Brazilians can consume more of both goods than if they don't specialize and don't trade.

effects of increased resources:

an advance in technology can increase the production capabilities of an economy, leading to economic growth and shift outward in the production possibilities frontier.

Law of increasing opportunity costs

as more of a good is produced, the opportunity costs of producing that good increase.

what does productive efficiency effect?

efficient points lie on the ppf, productive efficiency implies that it is impossible to produce more of one good without producing less of the other.

What can a PPF do?

exhibit constant opportunity costs of increasing opportunity

unemployment

exists at any productive inefficient point whereas resources are fully employed at any productive efficient point.

scarcity

implicit in the concept of scarcity is the idea that we can have some things but not all things. The ppf separates and attainable region from an unattainable region.