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A simple Demonstration

A simple Demonstration . Production Possibilities . Scarcity . We come to this world with many needs and desires while facing limited resources. We cannot have all we want! Given our limited resources, we have to make choices.

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A simple Demonstration

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  1. A simple Demonstration Production Possibilities

  2. Scarcity • We come to this world with many needs and desires while facing limited resources. • We cannot have all we want! • Given our limited resources, we have to make choices. • Every time make a choice in favor of one option we forego one or more other options: Opportunity costs

  3. Production Possibilities of an Economy: A simple Demonstration A production possibilities curve or frontier (or schedule) is a line drawn in a two-dimensional space (or a table) showing all the possible combinations of two goods that an economy can produce using all its available resources fully and in the most efficient way it can.

  4. Constructing a production possibilities curve: Assumptions: • The economy produces only two goods (or services) • Given resources • Given technology • Full employment • Full production

  5. Pizza(C) (3) (1) A (2) B 0 Robots (K)

  6. Figure 3: Technical Inefficiency

  7. The Effect War of the Economy • In wars resources are taken away from the production of consumer and capital goods and are reallocated to the production of military goods and services. • How does this reallocation of the economic resources affect the economy now and in the future? • Can a war be economically justified?

  8. Figure 4 Military Goods A B o Civilian Goods

  9. Figure 5 Military Goods Military Goods Consumer Goods Consumer Goods Large Economy Small Economy

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