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LO4

Scarce Resources. Natural, human, manufactured Land (all natural resources) Labor (physical and mental actions of people) Capital (manufactured aids) Entrepreneurial Ability (takes initiative; innovates). 1- 1. LO4. Production Possibilities Model.

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LO4

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  1. Scarce Resources • Natural, human, manufactured • Land (all natural resources) • Labor (physical and mental actions of people) • Capital (manufactured aids) • Entrepreneurial Ability (takes initiative; innovates) 1-1 LO4

  2. Production Possibilities Model • Society uses scarce resources to produce goods and services. • Illustrates production choices • Assumptions: • Full employment • Fixed resources (# of factors of production-land, labor, capital, is fixed) • Fixed technology • Two goods (hypothetical; economy is producing only two goods, one consumer, one capital. 1-2 LO5

  3. Production Possibilities Table & Curve • A Production Possibilities Table lists the different combos of 2 products that can be produced by society at a given time with limited resources.

  4. Production Possibilities Table Production Alternatives A B C D E Type of Product Pizzas (in hundred thousands) 0 1 2 3 4 Industrial Robots (in thousands) 10 9 7 4 0 Talk to me about these numbers… Plot the Points to Create a Graph… 1-4 LO5

  5. Production Possibilities Curve • More pizzas means fewer robots. • Go from A to B • Now go from B to C • The law of • increasing • opportunity costs: as production of one good increases, the OC of producing an additional unit rises! • Makes • the PPC concave. 14 13 12 11 10 9 8 7 6 5 4 3 2 1 A B Unattainable C Industrial Robots (thousands) D U Attainable E 0 1 2 3 4 5 6 7 8 9 Now look at p.12 Pizzas (hundred thousands) 1-5 LO5

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