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Production Possibilities Frontiers Antu Panini Murshid--Principles of Macroeconomics

Today’s Agenda ,[object Object],[object Object],[object Object],[object Object],[object Object],08/18/09 Antu Panini Murshid--Principles of Macroeconomics Scarcity Efficiency / inefficiency and unemployment Opportunity cost Economic Growth Concave PPF Linear PPF

Production Possibilities Frontier ,[object Object],[object Object],08/18/09 Antu Panini Murshid--Principles of Macroeconomics

Production Possibilities in a Two-Good Economy ,[object Object],[object Object],08/18/09 Antu Panini Murshid--Principles of Macroeconomics

Attainable and Unattainable ,[object Object],[object Object],[object Object],08/18/09 Quantity of Computers Produced Quantity of Cars Produced 3,000 1,000 Production Possibilities frontier 0 A C B

Illustrating Concepts Using a Production Possibility Frontier ,[object Object],[object Object],[object Object],[object Object],08/18/09 Antu Panini Murshid--Principles of Macroeconomics

Scarcity ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],08/18/09 Quantity of Computers Produced Quantity of Cars Produced 3,000 1,000 0 A C B

Efficiency, Inefficiency and Unemployment ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],08/18/09 Quantity of Computers Produced Quantity of Cars Produced 3,000 1,000 Inside the frontier! A 0

Opportunity Cost ,[object Object],[object Object],[object Object],[object Object],[object Object],08/18/09 Quantity of Computers Produced Quantity of Cars Produced 3,000 1,000 Not Possible! B 1 1,500 B 2 2,000 800 600 C 0

Economic Growth—Long Run ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],08/18/09 3,000 1,000 1,500 4,000 Quantity of Computers Produced Quantity of Cars Produced 0

Economic Growth–Short Run ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],08/18/09 A Quantity of Computers Produced Quantity of Cars Produced 3,000 1,000 B 0

Why Does the PPF Bow Outward? ,[object Object],[object Object],[object Object],[object Object],[object Object],08/18/09 Antu Panini Murshid--Principles of Macroeconomics

Illustrating the Point ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],08/18/09 Quantity of Computers Produced Quantity of Cars Produced 3,000 1,000 B 750 D 250 As we move up the PPF its slope decreases 0 A C

Linear PPFs ,[object Object],[object Object],[object Object],[object Object],08/18/09 Quantity of Computers Produced Quantity of Cars Produced 3,000 1,000  Y  X Slope =  Y/  X Slope at A… equals Slope at B 0 0 B A

Marginal Rate of Transformation ,[object Object],[object Object],[object Object],08/18/09 Antu Panini Murshid--Principles of Macroeconomics

Measuring the Opportunity Cost ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],08/18/09 Quantity of Computers Produced Quantity of Cars Produced 3,000 1,000 Slope =  Y/  X 200 800 2,400 600 0 0  Y  X B A

Summary ,[object Object],[object Object],[object Object],[object Object],08/18/09 Antu Panini Murshid--Principles of Macroeconomics

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