Macro 3.1 notes

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Production Possibilities Frontier
1.A curve that shows the maximum goods and services(full production and full employment) our economy can produce if it utilizes all available resources and technology fully and efficiently in a given time period.

2. The boundary between the combination of goods and services that can be produced and the combinations that cannot be produced, given available factors of production and the state of technology.

What are some of the assumptions used to explain production PPC?

Why make assumptions?
1. To simplify a complex situation
2. Easy to understand by focusing on key variables of interest while keeping all other background variables constant. (Ceteris Paribus)

1. Maximum goods and services that can be produced
2. Two goods world
3. Available resources are fixed and fully employed.
Land, labor, capital, management, technology, education, and training is fixed.

Why is the Production Possibilities Curve Bowed Outwards
1. Opportunity Cost
You cannot produce more of both, if you try to produce more of one you have to give up production of one.
2. Shows increasing opportunity cost
If you try to produce more of one good, the opportunity cost increases by you having to give u pmore of another good.
3. Factor Unsuitability

STrategies for economic growth
1. Invest in Education and training
2. Invest in R&D to develop new technology
3. Increasing Savings
4. Invest in new capital
5. Increase resources

Comparative Advantage
Comparative advantage is the ability of a person to perform an activity or produce a good or service at a lower opportunity cost than someone else.

Absolute advantage is a situation in which one person is more productive than another person in several or all trades.