TAILIEUCHUNG - Lecture Introduction to economics: Social issues and economic thinking: Chapter 2 - Wendy A. Stock

Chapter 2 - Production possibilities. After studying this chapter, you should be able to: Explain the importance of models in economics, describe the production possibilities model, illustrate the use of the production possibilities model, calculate opportunity costs of production,. | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 2 production possibilities Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: Pedro Portal/©AP/Wide World Photos 1 Explain the importance of models in economics Describe the production possibilities model Illustrate the use of the production possibilities model Calculate opportunity costs of production Define the concept of comparative advantage Apply the concept of comparative advantage to demonstrate the benefits of specialization and trade Discuss the difference between positive and normative economics Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 Models are used in economics and most other sciences to represent reality. Like a map, a Model is a simplification that captures the most important features of something but does not include each and every detail. Copyright © 2013 John Wiley & Sons, Inc. 3 MODELS IN ECONOMICS 3 Production Possibilities Model Combinations of goods or services that can be produced by an individual, a group, or an entire economy given the resources available and the state of technology. Copyright © 2013 John Wiley & Sons, Inc. 4 PRODUCTION POSSIBILITIES MODEL 4 Production Possibilities Frontier (PPF) --maximum amount of output that can be produced with a given set of resources and technology, ceteris paribus. Copyright © 2013 John Wiley & Sons, Inc. 5 Production possibility frontier 5 Copyright © 2013 John Wiley & Sons, Inc. 6 A hypothetic example 6 The production possibilities model shows some important relationships that represent the choices facing an individual, a firm or an entire economy. Copyright © 2013 John Wiley & Sons, Inc. 7 What’s in a PPF? 7 Scarcity and Tradeoffs Attainable and Unattainable Choices Points on or inside the PPF are attainable Points outside the PPF are unattainable Efficiency and Inefficiency Combinations of output that lie on the PPF .

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