Limits
Limits
Alternatives
Alternatives
Choices
Choices
The Production Possibilities Model (Pages 10-20)
Patrick Yanez
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Guidelines and tips
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Community
Ask the community
Ask the community for help and clear up your study doubts
University Rankings
Discover the best universities in your country according to Docsity users
Free resources
Our save-the-student-ebooks!
Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors
Understanding Capitalism's 'Soul' in Production: Limited Resources & Efficient Allocation, Study notes of Introduction to Macroeconomics
An in-depth exploration of the production possibilities model (ppm), a fundamental concept in economics that illustrates the trade-offs between limited resources and unlimited needs and wants. The ppm highlights the importance of efficient resource allocation and the concept of opportunity cost in a full-employment, full-production economy. Patrick yanez's document covers the philosophical and technical assumptions of the model, the concept of opportunity cost, and the law of increasing opportunity costs.
Typology: Study notes
Pre 2010
1 / 16
This page cannot be seen from the preview
Don't miss anything!
Related documents
Partial preview of the text
Download Understanding Capitalism's 'Soul' in Production: Limited Resources & Efficient Allocation and more Study notes Introduction to Macroeconomics in PDF only on Docsity!
LimitsLimits
AlternativesAlternatives^ ChoicesChoices^ The Production Possibilities Model (Pages 10-20) Patrick Yanez
Society’s Economizing Problem • Scarce ResourcesR^
C^
i
- Resources Categories:–^ Land
: natural resources– Labor: physical & mental abilities– Capital: all manufactured “aids” to producei.e.: tools, factories, stores, etc.- Entrepreneurial ability
: combines resources,
makes strategic decisions, take risks, innovates Patrick Yanez
Some basic concepts:^ ECONOMICS & EFFICIENCYECONOMICS & EFFICIENCY^ ECONOMICS^ FULL EMPLOYMENTFULL EMPLOYMENT
& EFFICIENCY ECONOMICS & EFFICIENCY FULL^ EMPLOYMENTFULL EMPLOYMENTFULL PRODUCTIONFULL PRODUCTIONFULL PRODUCTIONFULL PRODUCTIONPRODUCTIVE EFFICIENCYPRODUCTIVE EFFICIENCYPRODUCTIVE EFFICIENCYPRODUCTIVE EFFICIENCYALLOCATIVE EFFICIENCYALLOCATIVE EFFICIENCYALLOCATIVE EFFICIENCYALLOCATIVE EFFICIENCY Patrick Yanez
Is there a model that showsIs there a model that showsIs there a model that showsIs there a model that showsthe “soul” of capitalism?the “soul” of capitalism?the “soul” of capitalism?the “soul” of capitalism?the^
soul” of capitalism?the soul” of capitalism?the soul” of capitalism?the soul” of capitalism? Patrick Yanez
Production Possibilities ModelA “schedule” or a “table”^ Type of Product
Production AlternativesA^ B^ C
D^ E
Pizzas (in hundred thousands)
0 1 2
3 4
Industrial Robots
10
9 7
4 0
(in thousands)
Let’s Plot now these Points in a Graph Patrick Yanez
Let s Plot now these Points in a Graph
…
PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES PIZZAPIZZA^
in table formin table form^ PIZZAPIZZA
(in hundred thousands)(in hundred thousands) RobotsRobots^
RobotsRobots^
(in thousands)(in thousands) in graphicalin graphicalformform
otsands)ands) bbots ff
RobRob(thousa(thousa Patrick Yanez
PizzasPizzas^ (hundred thousands)(hundred thousands)
PPC Model 1PPC Model 1
stst^ ConclusionConclusion
Opportunity CostOpportunity
Cost
Patrick Yanez
PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES^ Limited Resources meansLimited Resources means
ots bbots
Limited Resources meansLimited Resources means a limited output....a limited output....
RobRob AtAt anyany^ pointpoint
inin^ timetime^
aa^ fullfull^ employmentemployment
fullfull
PizzasPizzas AtAt^ anyany^ pointpoint
inin^ time,time, a
a fullfull--employment,employment, full
full--
productionproduction economy
economy must
must sacrificesacrifice some
some ofof
productproduct X
X toto obtainobtain more
more ofof product
product Y
Y
productproduct X
X toto obtainobtain more
more ofof product
product Y
Y..
Patrick Yanez
How do we know when toHow^ do we know when tostop switching resourcesfrom one product to another?Optimal Allocation ofOptimal Allocation of
resources? Patrick Yanez
Production Possibilities Model:^ Optimal Allocation of ResourcesOptimal
Allocation of Resources
MC
Resources arebeing efficiently
15
a^
c MB = MC
MC
nal Cost being efficientlyallocated whenthe marginal
10
e efit & Margi n the marginalbenefit andmarginal costs
5 b
d arginal Ben M of its output areequal
0 1
d^ 2 3 MB
M MB = MC^ Patrick Yanez
1 2
3 Quantity of Pizza
Two Examples of Economic GrowthTwo Examples of Economic Growth PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIESPRODUCTION
POSSIBILITIES
PRODUCTION POSSIBILITIES FAVORINGFAVORINGPRESENTPRESENT GOODSGOODS
FAVORINGFAVORINGFUTUREFUTURE GOODSGOODS
Future ee Future
FutureFuture CURRENTCURRENTCURVECURVE^
CONSUMPTIONCONSUMPTION
s for the dds for the
ds for the Fds for the F FUTUREFUTURECURVECURVE
FUTUREFUTURECURVECURVE
GoodGood
GoodGood CONSUMPTIONCONSUMPTION
CURRENTCURRENTCURVECURVE
Goods for the PresentGoods for the Present Patrick Yanez
Goods for the PresentGoods for the Present