Illustration of Fundamental Economics Concepts
Introduction to Economics
Write an essay in which you describe/evaluate how the production possibility curve helps to illustrate fundamental economic concepts.
In this essay, I am going to evaluate the second important fragment of economics- Production possibility curve or simply PPF. The importance of understanding the method and analysing elementary economic diagrams is significant for progressing into more depth and other essential parts of the learning of economics. The starting point in economics is to measure what we can produce. Everyone’s infinite desires cannot be fulfilled due to scarce resources; therefore it is a limit to what our economy can produce. This can be shown and analysed by PPF or Production Possibility Frontier.
The PPF is used to evaluate the effectiveness of production processes if all resources in the economy are efficiently used. In other words, the PPF shows the maximum output that can be produced in an economy at any given moment, given certain amount of resources available. Commonly, when particular economy utilizes its scarce resources to the fullest, they always produce on PPF. In case production is below the PPF boundary, the economy does not fully utilize its resources.
The PPF does not always have to be drawn as a curve. Say the opportunity cost for producing two products is constant, and then I draw the PPF as a straight line. The gradient of that line is a way of measuring the opportunity cost between two goods, in my case quantity of guns produced and quantity of butter produced. A straight line PPF shows a constant opportunity cost between guns and butter. Increasing output of butter from point C to point D implies giving up 25 units of guns production. The marginal opportunity cost for each extra unit of butter is 25 units of guns. Because the two products are almost identical in this case and can be produced equally efficiently using the same resources, the opportunity cost of producing one over the other
Write an essay in which you describe/evaluate how the production possibility curve helps to illustrate fundamental economic concepts.
In this essay, I am going to evaluate the second important fragment of economics- Production possibility curve or simply PPF. The importance of understanding the method and analysing elementary economic diagrams is significant for progressing into more depth and other essential parts of the learning of economics. The starting point in economics is to measure what we can produce. Everyone’s infinite desires cannot be fulfilled due to scarce resources; therefore it is a limit to what our economy can produce. This can be shown and analysed by PPF or Production Possibility Frontier.
The PPF is used to evaluate the effectiveness of production processes if all resources in the economy are efficiently used. In other words, the PPF shows the maximum output that can be produced in an economy at any given moment, given certain amount of resources available. Commonly, when particular economy utilizes its scarce resources to the fullest, they always produce on PPF. In case production is below the PPF boundary, the economy does not fully utilize its resources.
The PPF does not always have to be drawn as a curve. Say the opportunity cost for producing two products is constant, and then I draw the PPF as a straight line. The gradient of that line is a way of measuring the opportunity cost between two goods, in my case quantity of guns produced and quantity of butter produced. A straight line PPF shows a constant opportunity cost between guns and butter. Increasing output of butter from point C to point D implies giving up 25 units of guns production. The marginal opportunity cost for each extra unit of butter is 25 units of guns. Because the two products are almost identical in this case and can be produced equally efficiently using the same resources, the opportunity cost of producing one over the other
Bibliography: R, Lipsey, C, Harbury. (1992), First Principles of Economics. Second edition, London: George Weidenfeld and Nicolson Ltd. A, Anderton. (2000), Economics, Third edition, Legoprint, Italy: Causeway Press Limited. Investopedia, www.investopedia.com, http://www.investopedia.com/university/economics/economics2.asp#axzz2BwbLvhuB By Reem Heakal Accessed on 11/11/12