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The Economic Problem

The Economic Problem. PPC’s and the Law of Increasing Costs. Production Possibility Curve. A visual demonstration of what can be produced given the limited amount of resources available PPC’s demonstrate opportunity costs as you move along the curve and decide to produce one good vs. another.

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The Economic Problem

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  1. The Economic Problem PPC’s and the Law of Increasing Costs

  2. Production Possibility Curve • A visual demonstration of what can be produced given the limited amount of resources available • PPC’s demonstrate opportunity costs as you move along the curve and decide to produce one good vs. another

  3. Production Possibility Curve – Straight Line

  4. Straight Line PPC • A Straight Line PPC assumes the following: • homogeneous inputs to the production process • same material, identical tools, and • labour that is equally skilled for both products • similar outputs – ie. Leather pants and leather • moccasins

  5. Production Possibility Curve – Concave

  6. Concave PPC • For a Concave PPC: • opportunity costs increase as you produce more of one product • this is called the Law of Increasing Costs

  7. Concave PPC • Law of Increasing Costs • As the production of any single item increases, the per unit cost of producing additional units of that item will rise • Why? • not all resources are equally suitable for the production of different products. • ie. Links and Smiles example • ie. Switching Sports example • Therefore a larger quantity of less suited resources will need to be reallocated to obtain the extra production of the other good, causing the opportunity cost to rise.

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