Dr. Mohammed Alwosabi Econ 140 – Ch.2
Points outside the frontier are
with the economy's current level of resources and technology. We need more than the available resources andtechnology to reach there.
Because scarcity forces the society to give up one choice for another, the slopeof the PPF will always be negative, reflecting the concept of trade off.
Possibility A shows that all resources are devoted to producing machines andno resources are available to produce food.
Possibility B shows that if some of the resources are assigned to produce 2 tonsof food, the production of machines would be reduced to 4 machines. Why?Because the resources used to produce the 5
machine were transformed tofood production.
The pattern continues on to the possibility F, where all resources are in theproduction of food and no resources available to produce machines. This resultsin 5 tons of food and zero machines
Points on the PPF represent the maximum production (output) we can get whenall resources are fully employed.
Full Employment and Unemployment
From the assumptions stated earlier, all resources must be
inorder for the economy to be operating on the PPF.
If all available resources are not used (i.e.,
of some of theresources), country ends up inside its PPF, producing less output than theycould have.
A reduction in unemployment moves the economy’s point of production closerto the PPF. When the society is closer to the PPF that means it is closer to fullemployment