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PSU ECON 104 - Production Possibility Frontier

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Econ 104 1st Edition Lecture 3Outline of Last Lecture I. Three Key Economic IdeasII. Why economics?III. The Index of Economic Freedom IV. Types of Economics Models and Analysis Outline of Current Lecture II. Production Possibility Frontier (PPF)III. Opportunity CostIV. Assumptions of PPFV. Economic GrowthCurrent LectureI. Production Possibility Frontier (PPF)a. Shows the max attainable combinations of two products that may be producedi. There must be Ceteris Paribus1. Meaning: a latin phrase that means while certain variables changes, “all other things constant”a. In PPF resources and technology are untouched. b. Points on the PPF graphi. On the PPF line = efficientii. Inside the PPF line= inefficient iii. Outside the PPF line = unattainable II. Opportunity Cost: the highest valued alternative that must be given up to engage in an activity a. What is the opportunity cost of producing more consumer goods?i. You might have to produce less military goodsb. Increasing Opportunity Cost: As an economy moves down along PPF, it can experience increasing marginal opportunity costs. i. This happens because the more resources already devoted to an activity, the smaller the payoff to devoting additional resources to that activity III. Assumptions of PPFa. Resources are fixedb. Full employment of resourcesc. Technology and productions techniques do not changeIV. Economic GrowthThese 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.a. PPF shifts outwardsb. Economic growth occurs when there is an increase in the:i. Resource base1. EX: natural gas, oil, increase in capitalii. Technology improvements1. Fracking, smart cars, computersc. The result of economic growth is that a country’s standard of living increases in terms of the number of goods and services available. V. The two most important sources of economic growth: a. Increase of capital stock b. Technology advance c. Both can leader to an increase in worker


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