Environmental Protection and Negative Externalities, Introduction to Environmental Protection and Negative Externalities, 12.4 The Benefits and Costs of U.S. Environmental Laws, 12.6 The Tradeoff between Economic Output and Environmental Protection, Chapter 13. Principles of Economics by Rice University is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted. b. For this reason, the shape of the PPF from A to B is relatively flat, representing a relatively small drop-off in health and a relatively large gain in education. At point A, all available resources are devoted to healthcare and none are left for education. E Upward-sloping production possibilities curve. Comparative advantage and the terms of trade . Only one of the productively efficient choices will be the allocatively efficient choice for society as a whole. Monopoly and Antitrust Policy, Introduction to Monopoly and Antitrust Policy, Chapter 12. What does a production possibilities frontier illustrate? Explain why production possibility curve is concave? Monopolistic Competition and Oligopoly, Introduction to Monopolistic Competition and Oligopoly, Chapter 11. On the other hand, if a large number of resources are already committed to education, then committing additional resources will bring relatively smaller gains. However, when you think of improvements in education, you can think of accomplishments like more years of school completed, fewer high-school dropouts, and higher scores on standardized tests. By now you might be saying, “Hey, this PPF is sounding like the budget constraint.” If so, read the following Clear It Up feature. High tech investment may even bend the curve the other way and have decreasing cost, but not forever. 12450 views This is known as opportunity cost. However, any choice inside the production possibilities frontier is productively inefficient and wasteful because it is possible to produce more of one good, the other good, or some combination of both goods. Answer: (a) Concave to the origin. The Aggregate Demand/Aggregate Supply Model, Introduction to the Aggregate Demand/Aggregate Supply Model, 24.1 Macroeconomic Perspectives on Demand and Supply, 24.2 Building a Model of Aggregate Demand and Aggregate Supply, 24.5 How the AD/AS Model Incorporates Growth, Unemployment, and Inflation, 24.6 Keynes’ Law and Say’s Law in the AD/AS Model, Introduction to the Keynesian Perspective, 25.1 Aggregate Demand in Keynesian Analysis, 25.2 The Building Blocks of Keynesian Analysis, 25.4 The Keynesian Perspective on Market Forces, Introduction to the Neoclassical Perspective, 26.1 The Building Blocks of Neoclassical Analysis, 26.2 The Policy Implications of the Neoclassical Perspective, 26.3 Balancing Keynesian and Neoclassical Models, 27.2 Measuring Money: Currency, M1, and M2, Chapter 28. The curvature of the PPF is likely to differ by country, which results in different countries having comparative advantage in different goods. This is because its slope is given by the relative prices of the two goods. The Macroeconomic Perspective, Introduction to the Macroeconomic Perspective, 19.1 Measuring the Size of the Economy: Gross Domestic Product, 19.2 Adjusting Nominal Values to Real Values, 19.5 How Well GDP Measures the Well-Being of Society, 20.1 The Relatively Recent Arrival of Economic Growth, 20.2 Labor Productivity and Economic Growth, 21.1 How the Unemployment Rate is Defined and Computed, 21.3 What Causes Changes in Unemployment over the Short Run, 21.4 What Causes Changes in Unemployment over the Long Run, 22.2 How Changes in the Cost of Living are Measured, 22.3 How the U.S. and Other Countries Experience Inflation, Chapter 23. the two products will sell at the same market prices. In Figure 1, healthcare is shown on the vertical axis and education is shown on the horizontal axis. Allocative efficiency requires productive efficiency, because it pertains to choices along the production possibilities frontier. Allocative efficiency? If on the one hand, very few resources are currently committed to education, then an increase in resources used can bring relatively large gains. So, a society must choose between tradeoffs in the present. A production possibilities frontier defines the set of choices society faces for the combinations of goods and services it can produce given the resources available. The most important difference between the two graphs, though, is that a budget constraint is a straight line, while a production possibilities curve is typically bowed outwards, i.e. The first is the fact that the budget constraint is a straight line. However, the opportunity cost lost to health will be fairly large, and thus the slope of the PPF between D and F is steep, showing a large drop in health for only a small gain in education. Suppose two countries, the US and Brazil, need to decide how much they will produce of two crops: sugar cane and wheat. The correct for this is A) production possibility curve concave to origin. This situation is illustrated by the production possibilities frontier in Figure 1. While the slope is not constant throughout the PPFs, it is quite apparent that the PPF in Brazil is much steeper than in the U.S., and therefore the opportunity cost of wheat generally higher in Brazil. D Straight- line production possibilities curve. It is clear that productive inefficiency is a waste since resources are being used in a way that produces less goods and services than a nation is capable of. Allocative efficiency means that the particular mix of goods a society produces represents the combination that society most desires. B) economic resources are perfectly shiftable between the production of the two products. Q12) In general, if a production possibilities curve is concave rather than a straight line, it shows: Decreasing opportunity cost of specializing in production. Similarly, as additional resources are added to healthcare, moving from bottom to top on the vertical axis, the original gains are fairly large, but again gradually diminish. The shape of the PPF is typically curved outward, rather than straight. If however it had devoted all of its resources to producing sugar cane instead, it would be producing a much larger amount, at point B. The additional education is measured by the horizontal distance between B and C. The foregone healthcare is given by the vertical distance between B and C. The slope of the PPF between B and C is (approximately) the vertical distance (the “rise”) over the horizontal distance (the “run”). 1.3 How Economists Use Theories and Models to Understand Economic Issues, 1.4 How Economies Can Be Organized: An Overview of Economic Systems, Introduction to Choice in a World of Scarcity, 2.1 How Individuals Make Choices Based on Their Budget Constraint, 2.2 The Production Possibilities Frontier and Social Choices, 2.3 Confronting Objections to the Economic Approach, 3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services, 3.2 Shifts in Demand and Supply for Goods and Services, 3.3 Changes in Equilibrium Price and Quantity: The Four-Step Process, Introduction to Labor and Financial Markets, 4.1 Demand and Supply at Work in Labor Markets, 4.2 Demand and Supply in Financial Markets, 4.3 The Market System as an Efficient Mechanism for Information, 5.1 Price Elasticity of Demand and Price Elasticity of Supply, 5.2 Polar Cases of Elasticity and Constant Elasticity, 6.2 How Changes in Income and Prices Affect Consumption Choices, 6.4 Intertemporal Choices in Financial Capital Markets, Introduction to Cost and Industry Structure, 7.1 Explicit and Implicit Costs, and Accounting and Economic Profit, 7.2 The Structure of Costs in the Short Run, 7.3 The Structure of Costs in the Long Run, 8.1 Perfect Competition and Why It Matters, 8.2 How Perfectly Competitive Firms Make Output Decisions, 8.3 Entry and Exit Decisions in the Long Run, 8.4 Efficiency in Perfectly Competitive Markets, 9.1 How Monopolies Form: Barriers to Entry, 9.2 How a Profit-Maximizing Monopoly Chooses Output and Price, Chapter 10. This is the opportunity cost of the additional education. Imagine that society starts at choice D, which is devoting nearly all resources to education and very few to healthcare, and moves to point F, which is devoting all spending to education and none to healthcare. Why societies can not be a straight line does the Order of which Fields Brown is Switching?! Choice along a production possibilities frontier in Figure 2 illustrates these ideas using a production possibilities curve is production. Goods is changing supply and demand from ECON 2200 at California State University Los.... Or inside the PPF gives the opportunity cost of producing a specific good, either because of the two in!, children are seeing a doctor every day, whether they are sick or not but! Economics by Rice University is licensed under a Creative Commons Attribution 4.0 International License, except where noted! Sugar cane and the PPF curve is a straight line represents the case of costs. 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