Post on 18-Jan-2016
transcript
Writ
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Production Possibilities Frontier
Thomas Carlyle
DismalScience
Writ
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Production Possibilities Frontieraka PP CurveDefinition: diagram representing the maximum amount of goods/services an
resources are used.economy can produce when all of its
Product1
Product 2
This curve represents the maximum amount of twogoods a society or business can make using all of their available resources efficiently.
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Fun
Nerd
AP Studen
t
Regular s
tuden
t
Slacker
Writ
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Production Possibilities Frontieraka PP CurveDefinition: diagram representing the maximum amount of goods/services a
resources are used.economy can produce when all of its
It represents: Opportunity Cost● Trade offs = all alternative activities
opportunity cost = next highest valued
For a country or individual company, this model may show decision on how much of two products to produce.
show the investment choice between capital and consumer goods
Consumergoods
Capitalgoods
Tivos
ipods
Or….
CapitalGoods
Consumer Goods
= Human Made resources used to produce goods and services
goods intended for final use by consumers
Writ
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s Dow
n
Production Possibilities Frontieraka PP CurveDefinition: diagram representing the maximum amount of goods/services a
resources are used.economy can produce when all of its
It represents: Opportunity Cost● Trade offs = all alternative activities
opportunity cost = next highest valued
Capital Goods = Human made resources
i.e. production tools, machines, equipmentused to produce goods and services
Writ
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s Dow
nCapital Goods = Human made resources
i.e. production tools, machines, equipmentused to produce goods and services
Consumer Goods = goods intended for final
i.e. ipod, xbox, french fries, etc.use by consumers rather than businesses
CapitalGoods
Consumer Goods
Points on the curve are CHOICES
CapitalGoods
Consumer Goods
Points on the curve are CHOICES
CapitalGoods
Consumer Goods
Points on the curve are CHOICES
0
100
100
90
40
70
6000
CapitalGoods
Consumer Goods
Points on the curve are CHOICES
Which pointYou choose depends on your goals
0
100
100
90
40
70
6000
CapitalGoods
Consumer Goods
Some choices will move the entire curve
If you make more capital goods, you can use them in the future to make more consumer goods, you will be capable of producing more
You must make yourself worse offin the short run,
to make yourself better offin the long run.
You must make yourself worse offin the short run,
to make yourself better offin the long run.
http://www.bradyworld.com/cover/minnow.jpg
The ship set ground on the shore of this uncharted desert isle
With Gilligan, the Skipper too, the millionaire and his wife..
the movie star,the professor &MaryAnn
Here on..
Gilligan and the Skipper had to eat….
The 1st day, they spent 6 hours fishing
But, only caught one fish…
On the 2nd day, the Skipper went to fish again..
http://www.tasaday.com/images/_sl-003.jpg
http://www.coracle-fishing.net/corac-pix2/net-11x.jpg
Gilligan decided to not eat
Instead he collected vines
The 3rd day he was VERY hungry, but instead of eating he made nets from the vines…
http://www.tasaday.com/images/_sl-003.jpg
http://www.coracle-fishing.net/corac-pix2/net-11x.jpg
http://www.surfingforlife.com/g/cult_b10.jpg
Gilligan decided to not eat
Instead he collected vines
On the 4th day, nearly starving… he used his net
http://www.zeroimpactproductions.com/seine-over-freezer.jpg
He caught so many fish that he could spend more time doing other things…
http://www.riveroflifefarm.com/images/lodging/th/th2/tree-house-summer.jpg
If the PP shifts outward
This is GOOD!= economic growth
CapitalGoods
ConsumptionGoods
CapitalGoods
ConsumptionGoods
If the PP shifts inward
This is BAD!!= economic decline
Writ
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nCapital Goods = Human made resources
i.e. production tools, machines, equipmentused to produce goods and services
Consumer Goods = goods intended for final
i.e. ipod, xbox, french fries, etc.use by consumers rather than businesses
Writ
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s Dow
nConsumer Goods = goods intended for final
i.e. ipod, xbox, french fries, etc.use by consumers rather than businesses
Economic Growth Economic Decline
Lets start with the good…
CapitalGoods
ConsumptionGoods
Five Variables that Shift the PP Outward:
1. Increase the productive labor force (# or productivity).
The parents of the baby boomers increased their future productive labor force by having a LOT of babies
New regulations/methods can increase employee productivity
Writ
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nConsumer Goods = goods intended for final
i.e. ipod, xbox, french fries, etc.use by consumers rather than businesses
Economic Growth Economic Decline
Writ
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nEconomic Growth Economic Decline
5 Shifters - things that will move curve out1. Increase the productive labor force (# or productivity).
Five Variables that Shift the PP Outward:
1. Increase the productive labor force (# or productivity).
2. Increase the quantity and quality of natural resources.
A company could find a new mine, or get to a more pure vein…
Writ
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n5 Shifters - things that will move curve out
1. Increase the productive labor force (# or productivity).2. Increase the quantity and/or quality of natural resources.
Five Variables that Shift the PP Outward:
1. Increase the productive labor force (# or productivity).
2. Increase the quantity and quality of natural resources.3. Increase the quantity and quality of capital.
A farming company could purchase more or better equipment
Writ
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n5 Shifters - things that will move curve out
1. Increase the productive labor force (# or productivity).2. Increase the quantity and/or quality of natural resources.3. Increase the quantity and/or quality of capital.
Five Variables that Shift the PP Outward:
1. Increase the productive labor force (# or productivity).
2. Increase the quantity and quality of natural resources.3. Increase the quantity and quality of capital.
4. Increase health and education.
Writ
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n5 Shifters - things that will move curve out
1. Increase the productive labor force (# or productivity).2. Increase the quantity and/or quality of natural resources.3. Increase the quantity and/or quality of capital.4. Increase health and education.
Five Variables that Shift the PP Outward:
1. Increase the productive labor force (# or productivity).
2. Increase the quantity and quality of natural resources.3. Increase the quantity and quality of capital.
4. Increase health and education.
5. Increase technology.
Writ
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n5 Shifters - things that will move curve out
1. Increase the productive labor force (# or productivity).2. Increase the quantity and/or quality of natural resources.3. Increase the quantity and/or quality of capital.4. Increase health and education.5. Increase technology.
The opposite is also true…
Capital
Consumption
Japan 1941
What capital goods did Japanproducein 1940?
umbrellasfor cocktaildrinks
What consumptiongoods did it produce?
rice
What did Japan do on December 7, 1941 ?
Capital
Consumption
Japan 1945
umbrellasfor cocktaildrinks
rice
What did the U.S. do toJapan for this dirty deed?
http://www.nhc.rtp.nc.us:8080/tserve/nattrans/ntimages/hiroshima.jpg
http://www.archives.gov/digital_classroom/history_day/bright_ideas/images/nagasaki.gif
Hiroshima
Nagasaki
morning of August 6, 1945
11:02 am, August 9, 1945
Capital
Consumption
Japan 1945
What do you think happenedto Japan’s productive labor force?
Capital
Consumption
Japan 1945
What do you think happenedto the quantity and quality of its natural resources?
Capital
Consumption
Japan 1945
What do you think happened tothe quantity and quality of its capital stock?
Capital
Consumption
Japan 1945
What do you think happened toits health and education?
http://hiroshima.tomato.nu/image/park_ma/e11-10.jpg
Capital
Consumption
Japan 1945
What do you think happened toits technology?
Capital
Consumption
Japan 1945
What happened to Japan’sPP?
CapitalGoods
ConsumptionGoods
Developed countries produce capital goods
Undeveloped countries produce consumption goods (i.e. food)
http://www.ellsworthamerican.com/archive/news2000/08-24-00/news3_08-24-00b.gif
CapitalGoods
ConsumptionGoods
Ethiopia
Prod
uce
Con
sum
e
= Starve
CapitalGoods
ConsumptionGoodsEthiopia
CapitalGoods
ConsumptionGoodsEthiopia
We sent food and $ which just prolonged the problem.
Solution: send capital goods insteadReality: we sent trackers, but forgot to send gas
CapitalGoods
ConsumptionGoods
Iraq
Oil
Sand?
Writ
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n5 Shifters - things that will move curve out
1. Increase the productive labor force (# or productivity).2. Increase the quantity and/or quality of natural resources.3. Increase the quantity and/or quality of capital.4. Increase health and education.5. Increase technology.
A decrease in any would have opposite effect, It would shift curve inward.
Guns
Butter
Military
Consumption goods
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The Advantages
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The Advantages
Absolute AdvantageOne entity can produce something absolutely faster than or greater than another entity.
Comparative AdvantageOne entity can produce something at a LOWER MARGINAL OPPORTUNITY COST than another entity.
Rum Rum
Crystal Crystal1 million
100,000
700,000
30,000
AB
0
C
80,000
40,000
0 40,000 80,000
Ireland Puerto Rico
A
B
C
Crystal Rum Crystal RumABC
1 million 0700,000 30,000 0 100,000
ABC
80,000 040,000 40,000 0 80,000
Rum Rum
Crystal Crystal
1 million
100,000
700,000
30,000
AB
0
C
80,000
40,000
0 40,000 80,000Ireland Puerto Rico
A
B
C
IRELAND
PRODUCE
1 Million Crystal0 Rum
TRADE-175,000+35,000
CONSUME825,00035,000
ON THEIR OWN
700,00030,000
ADDITIONAL W/ SPECIALIZATION
& TRADE
+125,000+5,000
--
==
PUERTO RICO
0 Crystal80,000 Rum
+175,000-35,000
175,00045,000
40,00040,000
+135,000+5,000-
-==
Rum Rum
Crystal Crystal1 million
100,000
700,000
30,000
A
B
0
C
80,000
40,000
0 40,000 80,000Ireland Puerto Rico
A
B
C35,000
825,000D
45,000
175,000 D
IRELAND
PRODUCE
1 Million Crystal0 Rum
TRADE-175,000+35,000
CONSUME825,00035,000
ON THEIR OWN
700,00030,000
ADDITIONAL W/ SPECIALIZATION
& TRADE
+125,000+5,000
--
==
PUERTO RICO
0 Crystal80,000 Rum
+175,000-35,000
175,00045,000
40,00040,000
+135,000+5,000-
-==
w/ trade
Which country is obviously better off through this specialization and trade?
Both Countries are!!!Both countries are now outside their own productioncapabilities. Through specialization and trade allparties are better off.
Rum Rum
Crystal Crystal1 million
100,000
700,000
30,000
A
B
0
C
80,000
40,000
0 40,000 80,000Ireland Puerto Rico
A
B
C35,000
825,000D
45,000
175,000 D
Writ
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The Advantages
Absolute AdvantageOne entity can produce something absolutely faster than or greater than another entity.
Comparative AdvantageOne entity can produce something at a LOWER MARGINAL OPPORTUNITY COST than another entity.* CA is used to decide who should produce what
Product1
Producti
vely E
fficie
nt
ON THE C
URVE =
CURVE =Inefficient or underused resources
INSIDE THE
Product 2
Lets discuss each part of the graph
PP CURVE
Inside the Curve = Not using all of your resources
Unemployment
Discrimination in hiring- Gender (ex: women in 1950’s)- Race- Religion
Unused Capital or technology (ex: laws, restrictions, bans)
Product1
Producti
vely E
fficie
nt
ON THE C
URVE =
OUTSIDE THE CURVE =Unattainable, can’t PRODUCE. But, can CONSUME via Specialization & Trade
CURVE =Inefficient or underused resources
INSIDE THE
Product 2
Lets discuss each part of the graph
PP CURVE
Product1
Producti
vely E
fficie
nt
ON THE C
URVE =
OUTSIDE THE CURVE =Unattainable, can’t PRODUCE. But, can CONSUME via Specialization & Trade
CURVE =Inefficient or underused resources
INSIDE THE
Product 2
Add this PP Graph to your notes
PP CURVE