January 5, 2017

Production Possibilities Graph shows an alternative way to show economy resources the line of the PPG the frontier

Efficiency is using resources in such a way to maximize the production of goods and services leads into increase profit 

Under utilization - opposite efficiency using fewer reason than economy is capable of using into decrease profit 

Part A- equally produce both attainable efficent  

Part B- attainable but inefficient under utilization unemployment/under employment of resources 

• famine/shortage food 
• war
• recession   

Part C unattainable. using the current resources 

Technology ecumenic growth 

Key assumpations 

1.  only 2 goods can be produced 

2. full employment of resoruces  

3. Fixed resources (factors of production) 

Three types of movement that occur with the PPC 

Inside the PPC 

Along the PPC 

Shifts of the PPC  

 When resources are shifted from making good or service to another the cost of producing the second and item increase. 

Elasticity of demand is measure of the consumer reaction to change in price 

Elastic demand - a demand that is very sensitive to change in price

• product is not a necessity 
• there are available substitutes  

E > 1  Example 1. Soda 2. Steak 3. Fur coat 

Inelastic demand is that is not very sensitive to a change in price 

• product is a necessity 
• no substitues 

E < 1 example: 1. gas 2. insulin

Unitary Elastic E=1

PED 

Step 1: Quantity New Quantity - Old Quantity/ Old Quantity 

Step 2: New price - Old price/ Old price 

Step 3: % 🔼 in quantity/ %🔼 in price = PED

Total revenue - total amount a firm recieves from selling goods and services  PXQ=TR  

TFC + TVC = TC

AFC + AVC = ATC

TFC/Q=AFC

TVC/Q=AVC

TFC=AFC X Q

TVC=AVC X Q

Marginal Cost 

New TC - Old TC = Marginal Cost