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Production Possibilities Curves

Learn the significance of Production Possibilities Curves in illustrating an economy's resource allocation, efficiency, growth, and the Law of Increasing Cost. Discover why it is essential to analyze different production combinations and the impact on resources. Explore how shifts in the curve indicate changes in resource availability and production capabilities.

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Production Possibilities Curves

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  1. Production Possibilities Curves 1-3

  2. Why the Curve?? • It shows alternative ways to use an economy’s resources

  3. Production Possibilities Frontier • Shows combinations of the production of two products • **Represents an economy working at most efficient levels • Making more of one product means less of another--------Scarcity of resources.

  4. Efficiency and Growth • Underutilization: any point inside the frontier. Not using all of economies available resources • Shift to the right: more resources available and growth occurs • Shift to the left: resources lost and production capability decreases

  5. Law of Increasing Cost • As production switches from one item to another, more and more resources are necessary to increase production of the second item • Figure 1.7(pg. 17)

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