ECON - MOD 3

productive efficiency

if it produces at a point on its production possibilities curve.

allocative efficiency

if it produces at the point along its production possibilities curve that makes consumers as well off as possible.

technology

the technical means for producing goods and services.

5. MC

a

production possibilities curve (ppc)

illustrates the trade- offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced.

Assume that an economy can choose between producing food and producing shelter at a constant opportunity cost. Draw a correctly labeled production possibilities curve for the economy. On your graph: a. Use the letter E to label one of the points that is productively efficient. b. Use the letter U to label one of the points at which there might be unemployment. c. Use the letter I to label one of the points that is not feasible.

picture

efficient

there is no way to make anyone better off without making at least one person worse off.

trade-off

when you give you give up something in order to have something else. up something in order to have something else.

1. MC

c

True or false? Explain your answer. a. An increase in the amount of resources available to Tom for use in producing coconuts and fish does not change his production possibilities curve. b. A technological change that allows Tom to catch more fish relative to any amount of coconuts gathered results in a change in his production possibilities curve. c. Points inside a production possibilities curve are efficient and points outside a production possibili- ties curve are inefficient.

1) False because when production recourses increase, economic system can produce more goods 2) True because positive technological changes cause increasing production 3) False. It production point isn't on the PPC this means that economic is not uses his recourses efficiently. Points outside PPC is unreachable.

1. FRQ

A) Yes. The PPC is bowed outward, so with each additional unit of butter produced, the opportunity cost in terms of gun production increases. Likewise, as more guns are produced, the opportunity cost in terms of butter increases. B) Point B. The country would choose an efficient point with more (but not all) military goods with which to fight the war. Point A would be an unlikely choice because at that point there is no production of any social good. C) Point E. A recession, which causes unemployment, is represented by a point below the PPC.

2. MC

d

3. MC

e

4. MC

e