1 / 16

PPC Review, Economic Systems & Circular Flow

PPC Review, Economic Systems & Circular Flow. Chapter 2 . I. The Production Possibilities Frontier (curve).

ismet
Download Presentation

PPC Review, Economic Systems & Circular Flow

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. PPC Review, Economic Systems & Circular Flow Chapter 2

  2. I. The Production Possibilities Frontier (curve) The PPC is an illustration of the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given production of the other.

  3. The Production Possibility Frontier Quantity of coconuts D 30 Feasible and efficient in production Not feasible A 15 B Feasible but not efficient 9 C Production possibility frontier PPF 0 20 28 40 Quantity of fish

  4. Increasing Opportunity Cost Quantity of coconuts Producing the first 20 fish . . . …requires giving up 5 coconuts 35 But producing 20 more fish . . . 30 A 25 20 …requires giving up 25 more coconuts… 15 10 5 PPF 0 10 20 30 40 50 Quantity of fish

  5. Economic Growth Quantity of coconuts Production is initially at point A (20 fish and 25 coconuts),  it can move to point E (25 fish and 30 coconuts). Economic growth results in an outward shift of the PPF because production possibilities are expanded. The economy can now produce more of everything. 35 E 30 A 25 20 15 10 5 Original New PPF PPF 0 10 20 25 30 40 50 Quantity of fish

  6. PPC Practice • Draw a PPC showing changes for each of the following: • Pizza and Robots • 1. New robot making technology • 2. Decrease in the demand for pizza • 3. Mad cow disease kills 85% of cows • Consumer goods and Capital Goods • 4. BP oil spill in the Gulf • 5. Faster computer hardware • 6. Many workers unemployed • 7. Significant increases in education

  7. Question #1 New robot making technology Q A shift only for Robots Robots Q Pizzas

  8. Question #2 Decrease in the demand for pizza Q The curve doesn’t shift! A change in demand doesn’t shift the curve Robots Q Pizzas

  9. Question #3 Mad cow disease kills 85% of cows Q A shift inward only for Pizza Robots Q Pizzas

  10. Question #4 BP Oil Spill in the Gulf Q Decrease in resources decrease production possibilities for both Capital Goods (Guns) Q Consumer Goods (Butter)

  11. Question #5 Faster computer hardware Q Quality of a resource improves shifting the curve outward Capital Goods (Guns) Q Consumer Goods (Butter)

  12. Question #6 Many workers unemployed Q The curve doesn’t shift! Unemployment is just a point inside the curve Capital Goods (Guns) Q Consumer Goods (Butter)

  13. Question #7 Significant increases in education Q The quality of labor is improved. Curve shifts outward. Capital Goods (Guns) Q Consumer Goods (Butter)

  14. II. Economic Systems • The two general types of economic systems seek to address the economic problem in differing ways. • In the market system, individual choice (desires of suppliers and demanders) is key to addressing the economic problem. • In the command system, government direction (through central planning entities) is key to addressing the economic problem.

  15. III. The Circular-Flow Diagram • This is a model that represents the transactions in an economy by flows around a circle. It demonstrates the interdependence between households and businesses in a market economy. • Some basic concepts: • Household: Aperson or group of people that share their income. • Business: Organization that produces goods and services for sale. Sometimes displayed as “firm” on this diagram. • Firms sell goods and services in the product market. • Firms buy resources they need to produce in the factor (or resource) market.

  16. The Circular-Flow Diagram

More Related