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  • L-2 Microeconomics PPF

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    Říź'vé Ŕahmæñ
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    The document discusses the production possibilities frontier (PPF) in three main points: 1) It defines the PPF as representing all combinations of two goods that can be produced given current resources and technology. The PPF can take different shapes depending on opportunity costs. 2) A straight-line PPF indicates constant opportunity costs, while a bowed-outward PPF shows increasing opportunity costs. 3) The PPF framework demonstrates economic concepts like scarcity, choice and opportunity cost, productive efficiency, and how economic growth shifts the PPF outward allowing more goods to be produced.

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    The document discusses the production possibilities frontier (PPF) in three main points: 1) It defines the PPF as representing all combinations of two goods that can be produced given current resources and technology. The PPF can take different shapes depending on opportunity costs. 2) A straight-line PPF indicates constant opportunity costs, while a bowed-outward PPF shows increasing opportunity costs. 3) The PPF framework demonstrates economic concepts like scarcity, choice and opportunity cost, productive efficiency, and how economic growth shifts the PPF outward allowing more goods to be produced.

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    23 views13 pages

    L-2 Microeconomics PPF

    Uploaded by

    Říź'vé Ŕahmæñ
    The document discusses the production possibilities frontier (PPF) in three main points: 1) It defines the PPF as representing all combinations of two goods that can be produced given current resources and technology. The PPF can take different shapes depending on opportunity costs. 2) A straight-line PPF indicates constant opportunity costs, while a bowed-outward PPF shows increasing opportunity costs. 3) The PPF framework demonstrates economic concepts like scarcity, choice and opportunity cost, productive efficiency, and how economic growth shifts the PPF outward allowing more goods to be produced.

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    of 13

    Lecture 2:

    Production Possibilities Frontier (PPF)

    -PPF
    - Shape of PPF
    -Increasing Opportunity Cost
    - Economic Concepts within a
    PPF Framework
    Ref:
    1. Economics (8e), Roger A. Arnold
    2. Economics (16e), Paul A. Samuelson and William D. Nordhaus
    baki.eco@gmail.com
    Production Possibilities Frontier (PPF)
    -Represents the possible combinations of two goods that can be
    produced in a certain period of time under the conditions of a
    given state of technology and fully employed resources.

    Example:
    Only two goods can be produced in an economy:
    • Computers and
    • Television sets

    So, PPF shows different combinations of computers and


    television sets that can be produced in our economy.

    baki.eco@gmail.com
    Example: PPF

    baki.eco@gmail.com
    Shape of PPF
    -Shape of PPF depends on nature of Opportunity
    Cost of goods.

    There are two basic shapes of PPF:


    1. Straight-line PPF
    - Constant Opportunity Costs

    2. Bowed-outward (concave) PPF


    - Changing (Increasing) Opportunity Costs

    baki.eco@gmail.com
    Example: Straight-line PPF

    baki.eco@gmail.com
    Example: Bowed-outward (concave) PPF

    baki.eco@gmail.com
    Increasing Opportunity Cost

    baki.eco@gmail.com
    Economic Concepts within a PPF
    Framework

    baki.eco@gmail.com
    PPF: Scarcity

    baki.eco@gmail.com
    PPF: Choice and OC

    baki.eco@gmail.com
    PPF: Productive Efficiency, Inefficiency
    and Unemployed Resources

    At F, Resources
    are unused

    baki.eco@gmail.com
    PPF: Economic Growth
    Economic growth refers to Economic Growth
    the increased productive shifts the PPF
    capabilities of an economy. outward. Now,
    individual or society
    Two major factors that affect can get more of
    what they want
    economic growth are -

    ( 1 ) a n i n c re a s e i n t h e
    quantity of resources (new
    discovery of resources) and

    (2) an advance in technology.

    We also can show poor vs rich


    economy, policy effect of an
    economy (before vs after new
    investment) etc. through PPF.
    baki.eco@gmail.com
    PPF: Different types of shift due to
    economic growth

    baki.eco@gmail.com

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