Efficiency doing the best you can given the limited amount of resources Production possibilities a combination of output that can be produced with available resources What is the optimal output of wheat and rice this economy can produce It depends on that economy s resources It depends on that economy s technology Technology a catalog of all the things an economy knows how to do As it improves you can produce more output with less input Production possibilities table gives the possibilities with this economy s technology and resource endowment Production possibilities frontier curve represents the various combinations of output an economy can produce given that economy s technology and resource endowment Points outside curve are unattainable points inside the curve are inefficient Is downward sloping Y axis opportunity cost Slope opportunity costs and gets steeper along the curve The opportunity cost of productions what you give up changes as you move along the production possibilities curve Understanding How a Change in Technology Resources affect PPF A movement along the curve represents an economy s change in choice Outward shift increased output at all points Caused by increases in resources workers and technology Individual product shift an increase of decrease at the points of an individual product fan inertilizer or other new technology affects only one product caused by an increase or decrease of resources for an individual product Climate change affects the amount of goods that can be produced Inward shift decreased output at all points less resources less output The curve only shows an economy working at full efficiency NOT consumer preferences The ppc tells us about the supply side of the economy Deriving an Algebraic Equation fro the Production Possibilities Frontier The algebraic formula for a production possibilities frontier PPF shows the opportunity cost of one good in terms of the other The reciprocal of the opportunity cost shows the opposite the opportunity cost of the second good in terms of the first one Concave PPFs show increasing opportunity costs Straight line PPFs show constant opportunity costs Bernie s PPF on the left tells us his opportunity cost of scrubbing a room in terms of how many rooms he cannot sweep You determine this by measuring the slope the rise divided by the run In this case the slope throughout the PPF is 2 meaning that in order to scrub one room he cannot sweep two rooms Review The slope is rise run Using the endpoints it is 6 3 2 The coefficient is negative because of the inverse relationship By the reciprocal rule you can reverse the axes and determine the opportunity cost of the other good The intercepts of Bernie s PPFs indicate the maximum amounts of sweeping and scrubbing that he could do as shown on the vertical axes The slope is the opportunity cost of getting more of what s on the horizontal axis in terms of what s on the vertical In the example on the left Bernie s opportunity cost of scrubbing a room is 2 swept rooms his opportunity cost of sweeping one room is 1 2 a scrubbed room Bernie s PPF is a straight line meaning that his resources are equally suited for either sweeping or scrubbing His opportunity costs are constant A PPF that is concave far left box indicates increasing opportunity costs Increasing opportunity costs mean that not all resources are equally suited for the production of both goods Unit Labor Requirement the amount of time it takes to perform each task Intercepts maximum output for either task Decreasing slope opportunity cost A BBBBBCCCD A person has a comparative advantage at an active ity if they perform that activity at a lower opp cost than anyone else Unit labor requirement the amount of time it takes to perform each task Absolute advantage when someone can produce a product or serve with less effort or resources DACBCBB