PPC & PPG

A. Trade-offs: Alternatives that we give up when we chosen course of action over the other.

B. Opportunity cost: The next possible alternative.

C. Production possibilities curve (PPC): Shows alternative ways to use an economies resources.
                                                      4 Assumptions of a (PPG)

                                                      1. Two goods
                                                      2. Fixed resources
                                                      3. Fixed technology
                                                      4. Full employment of resources


      D. Efficiency: Using resources in such a way as to maximize the production of goods and services.
·   Allocative efficiency: Products being produced are the ones most desired by society
·   Productive efficiency: Products are being produced in the least costly way (any point in the PPC)
   Underutilization: Using fewer resources than an economy is capable of using.

Points B & C would be obtainable and efficient, while Point F would be attainable yet inefficient and Point G would be unattainable and inefficient,

E. Three Types of movement that occur within the PPC
1. Inside of the curve- it occurs when resources are unemployed or under employed
2. Along the PPC
3. Shifts of the PPC


F. What causes the PPC/PPF to shift?
Technological changes
Economic growth
∆ in resources
∆ in the labor force
Natural disaster/ War/ Famine
More education and training ( human capital)

G. Demand:  quantities that people are willing and able to buy at various prices


The Law of Demand:  there is an inverse relationship between price and quantity demanded

H. What causes a "change" in quantity demand ?"    - change in price

What causes a "change in demand?"
∆ in buyer's taste
∆ in number of buyers
∆ in income: Inferior goods, Normal goods
∆ in price of related goods: Complementary goods, Substitute goods
∆ in expectations (future)