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University of Ottawa
David Gray

ECO1104 B Sep. 19 , 2013 YUJIE YI #7038840 Assumptions and Models Both of these groups have a MODEL in their minds about how the labour market functions  To be useful at all, the models have to omit a lot of detail, and thus they are generalized.  Any economic model good or bad, is based on unproven ASSUMPTIONS, from which subsequent logical deductions are made.  They are designed to SIMPLIFY the model so that conjectures can be made.  Assumptions are usually unrealistic. THE PPF  the Production Possibilities Frontier (PPF) is one first economic model,  Also called ATRANSFORMATION CURVE.  Assume that the economy produces two goods, “guns and butter”.  Ametaphor for social spending versus military spending during the Vietnam war  It represents all feasible combinations of production of the two goods.  On figure 2.2, the interpretation of point B: given 700 units of cars, 2000computers is all that can be produced.  The frontier does no include the axes. 4 Major Points Regarding the PPF  Points inside are feasible, while points beyond the PPF are unattainable.  This illustrates the problem of SCARCITY 1 /4 Points inside represent a situation of under-utilised resources.  - Canadian economy is producing at perhaps 95% of capacity, but much lower than that in the manufacturing sector - Frontier represents the Capacity.  Points on the frontier are said to be productively efficient.  The PPF has a negative slope  Also due to the problem of scarcity  This reflects what we call a TRADE-OFF - If we want more butter (guns), we have to give up some guns (butter) - “Books not Bombs” – trade off military spending for education spending - In Canada in 2013, it’s social spending (better) versus spending on security or infrastructure.  The tragic tale of Lyndon Baines Johnson (LBJ) - Over-expanded the US economy in the late 1960’s  Learning tip for the entire course: please note the link between the geometric level of analysis and the economic level of analysis - Name of th
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