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# Production Possibility Frontier Cheat Sheet by NatalieMoore

Economics

### Efficiency

 PPF typically repres­ented by a curve graph An economy operating on the PPF curve efficient (would be impossible increase production of one good without lowering production of another. Below the curve = inefficent as resources could be relocated to produce more of both goods Attainable point Anything on or within the curve can be attained with current resources Unatta­inable point Anything outside the curve cannot be attained with current reources. Ineffi­cient points Inside the curve, because not all resources are being used Efficent point On the curve. More of one good can be produced by sacrif­icing another

### Resources

 Production possib­ility changes based on bias of skills and resources Resources may not be suited to producing the opport­unity, therefore losing a higher potential Resources are finite, not unlimited By expanding the PPF a firm can produce more. Expand via improved techno­logy, or by bringing on more labour for example

### Opport­unity cost

 Opport­unity cost is the highest value altern­ative which must be given up to engage in an activity Changes in Op Cost Increases in op costs The Law of Increasing Opport­unity Cost holds that the value of forgone production increases as the quantity of a good increases. The reason for this is resource variab­ility. When all resources are used for one production some are well suited and others are not. Decreases in op costs In this case, opport­unity cost actually decreases with greater produc­tion. While opport­unity cost can decrease in limited circum­sta­nces, this is unlikely to happen for the economy as a whole. Remaining constant The oportunity cost does not change with produc­tion, not realistic for whole economy but does happen someti­mes.The economy forgoes the same amount of one good while producing more of the other

### Four Assump­tions

 Simplifies economies into one or two goods. Makes it simple to graph. More can be worked out with advanced maths. Assumes resources do not change. Assumes the knowledge and inform­ation society has for these products is fixed Assumes technical efficency, that is max production is being reached from inputs

### Concepts

 The most important economic concepts illust­rated using production possib­ilities analysis are Opport­unity Cost As more of one good is produced, less of the other goods is produced. Full Employment Producing on the PPC. All resources are engaged in production Unempl­oyment Producing within the PPC. All resources *are not engaged in production Economic Growth Indicated by an outward shift of the PPC. Investment Indicated by a tradeoff between the production of consum­ption goods and capital goods.

### Slope

 The slope of a line is measured by calcul­ating the change in the value measured on the vertical axis divided by the change in the value measured on the horizontal axis. Slope = Difference in Vertical (Rise) / Difference in Horizontal (Run) Slope = Δ Rise / Δ Run

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