Production possibilities frontier framework

16 November 2022
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Production possibilities frontier (PPF)
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the possible combinations of two goods that can be produced in a certain period of time under the conditions of a given state of technology and fully employed resources
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Law of increasing opportunity costs
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as more of a good is produced, the opportunity costs of producing that good increase
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productive efficiency
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the condition where the maximum output is produced with the given resources and technology
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productive inefficiency
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the condition where less than the maximum output is produced with the given resources and technology
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productive inefficiency
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the condition where less than the maximum output is produced with the given resources and technology; implies that more of one good can be produced without any less of another being produced
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technology
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the body of skills and knowledge involved in the use of resources in production; commonly increase the ability to produce more output with a fixed amount of resources or the ability to produce the same output with fewer resources
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comparative advantage
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the situation where someone can produce a good at lower opportunity cost than someone else can
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PPF: 7 economic concepts
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1. scarcity 2.choice 3. opportunity cost 4. productive efficiency 5. productive inefficiency 6. unemployed resources 7. economic growth
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Bowed-outward PPF
Bowed-outward PPF
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represents the law of increasing opportunity costs: increased production of one good comes at an increasing cost
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Straight-line PPF
Straight-line PPF
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represents constant opportunity costs: increased production of one good comes at a constant opportunity cost
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Choice
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is illustrated by the fact that we have to find a point either on or below the frontier (one of the seven various elements of PPF)
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opportunity costs
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is illustrated by a movement from one point to another on the PPF (one of the seven various elements of PPF)
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scarcity
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illustrated by the frontier itself (one of the seven various elements of PPF)
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unemployed resources and productive inefficiency
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illustrated by and points below the PPF (two of the seven various elements of PPF)
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productive efficiency and fully employed resources
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illustrated by a point on the PPF (two of the seven various elements of PPF)
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Economic growth
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illustrated by a shift outward in the PPF (one of the seven various elements of PPF)