Module 3 Jan 2015
AFeasible but not efficient B, C, and D Feasible and efficient in production XNot feasible
Trade-off – when you give up something in order to have something else. Ex: If you use your resources to bake a cake, you cannot use those same resources to make a pie. Production possibilities curve – a model economists use to understand an economy that produces only two goods. It will answer questions like “What is the maximum number of cake you can bake if you also want to make X number of pies?”
An economy is efficient if there are no missed opportunities. Its true if it makes some people better off, without making anyone worse off. Inefficient – Not using all of your resources efficiently. Any point ON the PPC is efficient in production Efficient in allocation means that everybody’s needs are being met. To be efficient, an economy must produce as much of each good as it can, and it must produce the mix of goods that people want to consume.
What must be given up in order to obtain that good. If Susie can bake 10 cakes a day OR 6 pies a day, then the OC to bake 1 cake is 6/10 or 3/5 of a pie. What is the OC of making 1 pie? Studying the PPC helps to capture that information in a visual Not all PPCs are straight lines (constant slopes), some are bowed, like when there’s an increase in the OC.
A slope with a straight line is known as a constant slope and the OC is known as a constant opportunity cost. The bowed slope is relative to an increasing opportunity cost.
Remember that it allows a sustained rise in aggregate output. It means an expansion of the economy’s production possibilities. An original PPC and a new PPC