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Agricultural Economics
AGEC 200
Anwar Naseem

Economic Models Second Model Production Possibilities Frontier - Graph showing combinations of two goods that economy can possibly produce given the available factors of production and available production technology - Two goods: computers and wheat o One resource: labour (measured in hours) o Economy has 50 000 labour hours per month - If produce more of one, will produce less of the other - So what is max you can get if all resources went into one type of output - Producing 1 comp = 100 hours labour - Producing 1 ton of wheat requires 10 hours labour - If all resources into computer = 500 computers and no wheat - Then different combinations (look at slides) - 5000 tons of wheat but no computer - Graph, linear graph - When on the line (PPF), you’re using all of resources, Anything below = using less o Under line = inefficient! - Can’t be above the PPF  unattainable o Requires more resources than you have PPF and Opportunity Cost - Opportunity Cost: How much wheat do you have to give up to get more computers - Looking at the Slope. For our example: m = -10 - So cost of computer is 10 tons of wheat Economic Growth and PPF - With more resources and improvement in technology, econ can produce more computers - Shifts outward (slope is less steep) - Pivot on the axis, so therefore improvement in technology (computer) o Cuz when using all resources, still getting same amount of wheat. - When pivot on computer axis, then technology/resources increased for wheat - Opportunity cost has changed b/c slope has changed! - You give up more wheat to produce more computer (if wheat tech improved) Shape of PPF - Straight or bow-shaped - When producing a lot of mountain bikes but very little beer, the opportunity cost for mountain bike goes up. (but when producing less mountain bikes is less opportunity cost) - It’s specialiation! - If lump everyone together into beer production, there might be people that are really not good! - If take them out and put into mountain bike, they might be good at that = more productive - **so splitting people up = giving them the choice of doing something they’re more productive in = increased production in the middle - When shifts from beer to mountain, PPF becomes steep and OC of an extra mountain bike inc PPF Summary - Shows many things, and shows what happens when you shift thing saround - Bow-shaped PPF illustrates concept of increasing opportunity
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