Introduction Part 2

Production Possibilities

Positive vs Normative Statements

Production Possibilities

• The maximum amount of two products that can be produced using all available resources efficiently.

Production Possibilities

• The maximum amount of two products that can be produced using all available resources efficiently.

Production-Possibilities Curve

• By plotting all the points onto a graph and connecting the points we create a line called the production-possibilities curve.

• The curve shows all the possible combinations of corn and spears that can be produced

Production-Possibilities Curve

Point G:

Inefficient

Point F:

Unattainable

Points A – E:

Efficient

Movement in the PPC

• Technological Advance

Movement in the PPC

• Economic growth

Production-Possibilities Curve

• Opportunity Cost• To produce more spears, a certain

amount of corn has to be sacrificed.• Opportunity cost of x spears = amount

of corn to be “sacrificed”

• The opportunity cost can be found by finding the slope of the line.

Production-Possibilities Schedule

1 Production Alternatives or

Possibilities

2 Butter

(in hundreds of kg)

3 Plows 4

Opportunity Cost of each plow (that is, the

hundreds of kg of butter given up for

each plow)

A 0 15

B 1 14

C 2 12

D 3 9

E 4 5

F 5 0

Positive vs Normative Statements

• Positive statements are statements that describe the world as it is.

– Called descriptive analysis

• Normative statements express a judgment about whether a situation is desirable or undesirable.

– Called prescriptive analysis

Positive or Normative?

• "The moon is made of green cheese"

• "The world would be a better place if the moon were made of green cheese"