ECON 224- Midterm Exam Guide - Comprehensive Notes for the exam ( 122 pages long!)
12 Oct 2017
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Module 5: production possibility frontier and comparative advantage. Discuss how the production possibility model relates to scarcity. Society uses its scarce resources to produce goods and services. The alternatives and choices it faces can best be understood through a macroeconomic model of production possibilities. Name the assumptions made when using the production possibility model. Full employment : we assume that the economy is employing all available resources. Fixed resources : we assume that the quantity and quality of factors of production are fixed. Fixed technology: the state of technology (method of producing output) is constant. Two goods: we assume that the economy is only producing two goods, food products and manufacturing equipment. In the production possibility model, food products symbolize consumer goods, which directly satisfy our needs. Manufacturing equipment symbolizes products that satisfy our wants indirectly by making production of goods more efficient.
