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1500 words
Sheryl Deakin
1st September 2014
Production Possibility Curve
Economics
Explain what is meant by a Production Possibility Curve and use a Production Possibility Curve diagram to explain the concepts of scarcity, efficiency, choice and opportunity cost. [25]
The basic economic problem revolves around 3 questions to do with scarcity and choice:
What to goods and services produce
2. Who to produce the goods and services for
3. How to produce the goods and services
We must make these choices because humans have infinite wants but our earth is only able to supply a finite amount of resources; our wants exceed the resources able to fulfill them, therefore we must make a choice to make between the alternative
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The given set of the factors are determined by our scarce resources. Any resources that are not scare are called free goods; free goods are goods without opportunity cost.
The Production Possibility Curve assumes that all the available factors of production are being used efficiently and ceteris paribus: fixed resources, fixed technology, full employment. Moreover, the Production Possibility Curve assumes that there are only 2 goods. These goods are judged by a value that may be a normative or not fully inclusive of all costs. This is often due to externalities that are often very hard to judge value. For example, an object may have a relatively low price value, but its positive externalities aren’t factored in; different people can interpret different values for the good in question.
A Production Possibility Curve can be drawn concave to the origin. This is done to demonstrate how the the marginal output of the particular good may fall. E.g. As more resources are allocated to good x, the marginal output decreases. This is known as diminishing returns. It also demonstrates an increasing opportunity
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Factors that cause the Production Possibility Curve to shift left include: a reduction of population, a decrease in technology available, a decrease in education and/or training, etc. Overall, a decrease in productivity lead to a recession and a shift of the Production Possibility Curve to the left.

Reallocating scarce resources from one product to the other involves an opportunity cost. For example, to acquire more of good Y, you must give up the value of good X you are already producing. The opportunity cost would be the value of good X given up to produce more of good Y. In the graph below, to produce more Capital goods but moving from point A to B, we must give up (X2 - X1) number of consumer goods to produce (C2 - C1) extra number of capital goods. The opportunity cost of producing (C2 - C1) extra number of capital goods is the (X2 - X1) number of consumer goods that had to be forgone to do so.

If a student has an exam the next day and they stay up late studying for it, the next day they will be exhausted and very sleepy. The student as chosen to allocate less time towards sleeping and more time towards studying, therefore the opportunity cost is the good night’s sleep the student could have had instead of
All societies today are faced with the economic problem of relative scarcity. Relative scarcity rises from the fact that all our wants and needs cannot be completely satisfied as we have a limited amount of resources. Australia, which is predominately a market economy, is faced with this particular economic problem of relative scarcity, which results in facing the three choices of what to produce, how to produce and for whom to produce.
curve shifts to the _____ and the quantity of aggregate output that producers are willing
Product uncertainty is relevant with what we see often in medicine today; for example an individual can be diagnosed with cancer a team needs to consider the appropriate treatment for this individual. Another example is when a patient needs a organ transplant many time to the progression of the individuals
'The choice between them depends not on which one is right, but what we wish to know'
“Marginal analysis involves changing the value(s) of the choice variable(s) by a small amount to see if the objective function can be further increased (in the case of maximization problems) or further decreased (in the case of minimization problems)” (Thomas & Maurice, 2012, pp. 91). Marginal analysis is known as “the central organizing principle of economic theory” for its importance and applicability to many aspects of our daily lives as well as our careers (Thomas & Maurice, 2012, pp. 94). The key concepts of marginal analysis include total benefit, total cost, marginal benefit, marginal cost and net benefit. These concepts all come together to play a significant role in the use of marginal analysis to reach the optimal desired outcome.
Where x is the quantity/output, Ci is the total cost, and U is the utility. A firm's action can have a substantial effect on the other.
For instance, if a business wants to produce 5,000 more t-shirts, yet it will require the purchase of another machine, the marginal cost for the extra t-shirts includes the cost of the new machine. A marginal product describes the additional output that results from adding one more unit of input. It can be calculated by dividing the change in the total product by the change in the variable input. For example, in order to increase the t-shirt productivity by 1000 units, the company may hire two new employees to the production line. In which case, the total change in product is 1000 units. Although, hiring two more employees increases productivity, now the law of diminishing marginal product applies. Diminishing marginal product primarily indicates that increasing one input while retaining other inputs at the same level will initially increase output; however, further increase in the output level will eventually diminish. For example, hiring an extra two employees to increase productivity, will eventually have a limited effect or diminish the average income. Production function is a graph utilized to demonstrate the relationship between physical inputs and outputs, define marginal product, and distinguish allocative
A change in quantity supplied is just a movement from one point to another in the supply curve. In opposite, the cause of a change in supply is a change in one the determinants of supply that shifts the curve either to the left or the right. These determinants are the resource prices, technology, taxes and subsidies, producer expectations, and number of sellers. An equilibrium price is required to produce an equilibrium quantity and a price below that amount is referred as quantity supplied of zero no firms that are entering that particular business. If the coefficient of price is greater than zero, as the price of the output goes up, firms wants to produce more of that output. As the price of the output goes up it becomes more appealing for the firms to shift resources into the production of that output. Therefore, the slope of a supply curve is the change in price divided by the change in quantity. The constant in this equation is something less (negative number always) than zero because it requires strictly a positive...
2. Define a product cost flow. Give a real-life example of a product cost flow.
Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company’s goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.
Figure I I .4 illustrates the effects of an increase in demand. OD is the original demand curve so that the equilibrium price is P and quantity Q is demanded and supplied.
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
In case of indeterminacy and incomplete information about the possible choices, their consequences or even the triggers and correlations among events, the decision-maker is forced to make up as many missing data as possible to guide his choice. That process is the scenario analysis; it explores the scope of the possible, not only the probable, under certain basic assumptions. Scenarios are thus the description of a variety of long-range alternatives leading to different outcomes and all the possible paths that can bring to an
A major area of concern among economists is opportunity costs. Opportunity costs are the products that are given up for another product. Because we have a limited amount of resources, we must find the most efficient way to use them. Production possibilities are the alternative combinations of all final goods and services that can be produced in a given time period with all available resources and technology. The main objective of economists is to maintain maximum output in production.
The production possibility frontier (PPF) is a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. When predicting the production possibility frontiers for Brazil and United States the following factors such as labor, capital and technology, among others, will affect the resources available, which will dictate where the production possibility frontier lies. The production possibility frontier is also known as the production possibility curve or the transformation curve would be as follows. The two countries form a synergetic alliance where Brazil exclusively produces clothes while United States exclusively produces soda, with open