ECONOMIC DECISION MAKING CHAPTER 2 Part 2

MEASURING WHAT WE GAIN/LOSE Production Possibilities Frontier(graph): how an economy might use its resources to produce two goods. A PPF(graph): can also show tradeoffs and measure opportunity costs. Production Possibilities Curve: the line that shows the different combinations that can be produced.

MEASURING WHAT WE GAIN/LOSE Every point on a PPC represents an efficient use of the resources. The area under the curve represents an attainable but inefficient use of resources. The area above the curve represents an unattainable goal based off current resources.

MEASURING WHAT WE GAIN/LOSE Increases in productivity, a measure of the output of a system, can shift the PPC outward.

MEASURING WHAT WE GAIN/LOSE A PPF can also measure economic efficiency. This is when an economy uses its resources in such a way that produces the max amount of goods and services possible. (the points on the graph are on the PPC)

MEASURING WHAT WE GAIN/LOSE A PPF can also measure economic change. A change in technology, or a growth or shrinkage in the economy can cause the PPC to shift inwards or outwards.

MEASURING WHAT WE GAIN/LOSE

Production possibilities curve

Calculating Opportunity Cost B. 660 cell phones to C. 600 cell phones = - 60 cell phones B. 300 bananas to 500 bananas = + 200 bananas Gain 200 pounds of bananas Lose 60 cell phones