Macro 3 notes

16euta

Production Possibilities Frontier
-The boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.

Not everyone can have the same amount of capital, and there is a limited amount, so one product's increased production will cause another product's production to suffer.

The Production Possibilities Frontier is a valuable tool for illustrating the effects of scarcity and its consequences. THe PPF puts three features of production possibilities in sharp focus. They are the distinctions between
-Attainable and unattainable combinations
-Efficient and inefficient production
-Tradeoffs and free lunches

Attainable and unattainable combinations.
Because the PPF shows the limits to production, it separates attainable combinations from unattainable ones. While products may be produced simultaneously using the same resources, there is a point where the production of one cannot go past the PPF because products with the same resources are using them up.

Production Efficiency
A situation in which the economy is getting all that it can from its resources and cannot produce more of one good or service without producing less of something else.
For production to be efficient, there must be full employment- not just of labor but of all the available factors of production- and each resource must be assigned to the task that it performs comparatively better than other resources can.

Tradeoffs and Free Lunches
A tradeoff is an exchange- giving up one thing to get/improve something else.

"There is no such thing as a free lunch."
A free lunch is a gift- getting something without giving up something else.
This concept means that when production is totally efficient, something must be reallocated to something else, thereby reducing one product's production to increase the other's. When production is not totally efficient, then a free lunch occurs because nothing is being taken from something else.

Opportunity cost
The best thing you must give up to get something. We can use the PPF to calculate opportunity cost.

Economic Growth
The sustained expansion of production possibilities.

Absolute advantage
When one person is more productive than another- needs fewer inputs or takes less time to produce a good or perform a production task.
Being more productive means using fewer inputs or taking less time to produce a good or perform a production task.
Being more productive also means being able to produce more with given inputs in a given amount of time.

Comparative advantage
The ability of a person to perform an activity or produce a good or service at a lower opportunity cost than anyone else.
This means that laborers with a comparative advantage require less opportunity cost to produce a product.