ECON 1113 1st Edition Lecture 2 Outline of Last Lecture I The Basic Economic Problem A Two Economic Facts B Economic Resources C Scarce Economic Resources vs Unlimited Material Wants Outline of Current Lecture I Production Possibilities Analysis A Assumptions B Production Possibilities Table C Production Possibilities Curve D Explanation of Production Possibilities Curve E Relaxing the Assumptions Current Lecture I Production Possibilities Analysis PPA A Assumptions simplifying and general characteristics of economic principles unrealistic 1 Two Goods a Consumer goods goods consumed directly b Capital goods goods used to produce other goods 2 Resources are fixed in quantity 3 Technology does not advance 4 No unemployment or underemployment of resources exists a Underemployment resources being employed used but not to their full potential B A Production Possibilities Table PPT Production Alternatives Goods A B C D E Consumer 10 9 7 4 0 Capital 0 1 2 3 4 These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute 1 Dollar Voting in Market Economy USA a When individuals spend money in the United States market they are voting for products with their purchases b Thus the PPT would offer produces different production options to maximize profit for their businesses 2 Command Economy former Soviet Union determined by the national Politburo through 5 year plans which set the consumer and capital production of goods a Not capital goods but military goods in this instance due to the regime s agenda b Desire more military goods rather than consumer goods c Therefore you must choose and sacrifice for choice C A Production Possibilities Curve PPC 1 Capital goods form the y axis of the graph 2 Consumer goods form the x axis of the graph 3 The PPC summarizes the basic economic problem 4 The curve is one line that displays the potential possibilities offered by the four basic resources Production Possibilities Curve Based on the Above Table Capital Goods K Production Possibilities Curve 4 5 4 3 5 3 2 5 2 1 5 1 0 5 0 0 2 4 6 8 10 12 Consumer Goods C D What the PPC Table Illustrates 1 The necessity of choices points that occur on the PPC 2 Economic costs downward negative slope of the PPC a The curve illustrates the idea of increasing economic costs shown by the concavity of the PPC b Additional units of 1 good require that increasing amounts of the other goods must be foregone or given up sacrifice still involved c Why Its not a straight line 3 Scarcity creates a limit on the possibilities creating the PPC 4 Points inside the PPC display less than total utilization of resources 5 Points outside the PPC are unattainable due to scarcity of resources but these circumstances are preferable and growth will expand the PPC to points that currently lie beyond the PPC E Relax the Assumptions to mirror a more accurate economic reality 1 Positive unemployment and or underemployment another reason for points inside the PPC a Unemployment can refer to any of the four basic resources 2 Growth or increases in economic resources and or technological advance a Shown by shifts in the entire PPC that move the line outward to the right and upward 3 Currently the US does not fully employ all resources so the point representative of that economy lies within the PPC
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