Production Possibilities Table
The production possibilities table and curve (or frontier) shows the MAXIMUM POSSIBLE LEVELS OF PRODUCTION.
The graph is based on the following assumptions which "simplify " the real world:
1) fixed resources
2) fixed technology
3) full employment and productive efficiency
4) only two goods
Given these assumptions, let's assume that we have the following data.
Demonstrating the Necessity of Choice
We can use the production possibilities model to demonstrate many important and fundamental economic principles.
The PPC can demonstrate the fact that because of scarcity, we must make choices.
Is it possible for a country's PPC to shrink?
Remember, any point on a graph represents two numbers. Point A represents the more capital goods than the other points, so if we produce at point A we will get more future growth. But this comes at a cost (opportunity cost). Point A represents more capital goods, but LESS CONSUMER GOODS.
Since World War II, the country of Japan has been operating near point A on its PPC. Japan has been producing a lot of capital good and has achieved much economic growth. The cost of this growth is fewer consumer goods. The average Japanese income is about the same as that in the US, but they have fewer consumer goods in their homes.
Since World War II, the United States has been operating closer to points B or C on its PPC. We have been producing and consuming many consumer goods, but we have not been adding to our stock of capital resources as quickly as we could.
The choices we make today affect how much we are able to produce in the future.
MACROECONOMICS- is concerned with the behavior of the economy as a whole. It deals with both long-run economic growth and the short-run fluctuations that constitute the business cycle.
GROSS DOMESTIC PRODUCT (GDP)- is...