Unit one: PPF

(1/8/15)

 4 factors of production...
1. Natural resources.
2. Labor. (work force)
3. Capital (physical & human)
     - Physical: human made objects used to create other goods and services. (EX: machinery)
     - Human: knowledge and skills gained through work and education.
4. Entrepreneurship


TERMS
- Trade-offs: alternatives that we give up whenever we choose one course of action over another.
- Opportunity cost: most desirable alternatives given up by making a decision.
- "Gun or Butter": Guns = military.  Butter = agriculture.
- Production possibility graph: shows alternative ways to use resources.

Meanings behind each letter!

A- Efficient, but producing more refrigerators.
B- Efficient and attainable.
C- Efficient, but producing more cars.
X- Under-utilization. Attainable, but inefficient.
Y- Unattainable.



*A, B, & C = On the curve.
*X is inside of the curve. (recession, famine/war, underemployment on people/resources, and                   population loss)
*Y is outside of the curve. (economic growth, discovery of new resources/technology.)

The key assumptions for production possibility graph... 
1. Two goods are priduced.
2. Full employment.
3. Fixed resources. (land, labor, & capital)
4. Fixed state of technology.
5. No international trade.
     -Outside curve cannot produce.