Production Possibility Frontier (PPF) We must assume that

Production Possibility Frontier 6 2 Good X Good Y A 2 8 B X – ex Y łaj

Production Possibility Frontier Good X Good Y B A

Production Possibilities Curve – example for Grades in Mathemtics and Economics A – only this extreme positions are In this case expect a grade A X axis Y axis

Production Possibility Frontier – Definitions For each level of the output of one good, the production possibility frontier shows the maximum amount of the other good that can be produced. A graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently. A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently.

Production Possibility Frontier Good Y A B C 6 Good X

Production Possibility Frontier - Production Possibility Set Good X Good Y All this triangle

A Typical PPF Picture Good Y Very important aspect / feature of Good X

The Shape of the PPF Good Y Good X At the expense of – kosztem In order to produce more units of food Good X

The Shape of the PPF Good Y Good X

Marginal Rate of Transformation (MRT) Consumer Goods (Pizza) MRT = -R / P 100 A 90 Cost = 40 pizzas B 50 We have to shift / transfer 40 units of pizza to 20 units of robots more / to the prodution od robots. Minus here shows that we give up certain product at certain level . We deside to produce less / fever units of pizza. We can calculate MRT by dividing … Benefit = 20 robots 25 45 50 Capital Goods (Robots)

Marginal Rate of Transformation The rate at which one good must be sacrificed in order to produce a single extra unit (or marginal unit) of another good, assuming that both goods require the same scarce inputs. The marginal rate of substitution is tied to the production possibilities frontier (PPF), which displays the output potential for two goods using the same resources. To produce more of one good means producing less of the other because the resources are efficiently allocated.

Good Y 60 50 40 30 20 10 10 20 30 40 50 60 Good X

Good Y 40 32 20 The slopes at all points are different. By another ten unit ( o kolejne 10 jedn.) from industry Y to industry X The cost of this operation is hight thab in the previous period 10 20 30 Good X

Law of Increasing Relative Cost As society attempts to produce more units of certain good, the opportunity cost of additional units of that good generally increases. With what I have already presented / talk about there is … closely connected It was shown / wsa described in those last picture

Attainability of Production Level Good Y Attainable Unattainable Attainable Attainable Where we are talking about PPF we also have to mention / describe/ show .. Over Below As you remember this PPf means / stands for Good X

Efficiency and the PPF D Good Y Efficient Unattainable A C Efficient Inefficient Efficient B Placed on / which are on the curve Good X

Efficiency Efficiency is getting the most from available resources. The case in which a given level of inputs is used to produce the maximum output possible. The situation in which a given output is produced at minimum cost. The condition in which there is no possibility to rearrange production inputs which means we can not increase the production of one good without decreasing the production of another good.

Inefficiency Waste and mismanagement are the results of a firm’s operating below its potential. Is the situation when ..

Reasons for the Inefficiency Typically countries aren’t operating along the PPF. Reasons: Un-/underemployment, Resources or capital not used efficiently / is waste Not the best technologies are applied More fundamentally: Imperfect information Uncertainty Laws and regulations Market failures Guess – zgadywać, precise information Might buy/ want Create new jobs/ workplace changes in laws are not convienient for producers It affects / in influence

Changes in the PPF a d c b . Consumer Goods (Pizza) Unattainable with current resources and technology 100 a d 90 Cost = 40 pizzas policy c b . 50 Inefficient – unemployed resources Which seems quiet natural / obvious Benefit = 20 robots 25 45 50

The PPF and Economic Growth Consumer Goods Economic Growth = (change in GDPt) (change in GDPt-1) GDP at t GDP at t-1 Economic Growth Are becoming attainable At lower cost of production Are not necessary Earlier – wczesniejszy Later - późniejszy Capital Goods

Economic Growth Economic growth is an increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources.

Reasons for Economic Growth Physical capital Human capital / labor Technology Resources Entrepreneurship In other words