Econ 221 Notes 2.pdf

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ECON - Economics
ECON 221
Roy Mclean

Economics 221 Notes continued Production Possibilities Frontier (PPF)-The locus of the points that separate attainable and unattainable production combinations. Assumptions: 1)Economy is operating efficiency(Full Employment,Full Production) 2)Available supply of resources is fixed in both quantity and quality. 3)Technology is fixed. 4)Economy produces two types of goods. a)Consumer Goods-Goods that are used by the purchaser and not reprocessed for future resale. b)Capital Goods-Goods such as factory machinery that is used to produce other goods and services. Regions of the PPF: 1.The PPF:Efficiency a)Full Production b)Full Employment On the PPF,more than one good requires a decrease in the production of the other good. “No Free Lunch” 2.Inside the PPF:Unemployment Using unemployed resources moves economy closer to the PPF. Thus, more of one good can be produced with no reduction in the production of the other good. 3.Outside the PPF:Unattainable Things that cause the PPF to shift: 1)Change in quantity 2)Change in resource quality 3)Improvement in technology Economic Growth-A rightward shift of the PPF,making attainable production combinations that had been unattainable. Types of PPFs: 1)Linear-Constant Opportunity Cost,Assume perfect substitutability of resources can be shifted with no loss of efficiency. 2)Increasing Opportunity Costs PPF-Concave or bowed out Opportunity Cost-The amount of other products tha
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