Production Possibilities Frontier Consumer Goods Production Possibilities Frontier (PPF) shows all possible combinations of two products (Consumer Goods and Capital Goods) that a country can produce with available technology and full employment of all resources. PPF 0 Capital Goods
A Production Possibility Frontier Suppose that the production possibility frontier can be represented by To find the slope, we can solve for Y If we differentiate
A Production Possibility Frontier When X=5, Y=13.2, the slope= -2(5)/13.2= -.76 When X=10, Y=5, the slope= -2(10)/5= -4 The slope rises as X rises.
Indifference Curves An Indifference Curve represents all combinations of market baskets that provide a consumer with the same level of satisfaction.
Characteristics of Indifference Curves • Indifference curves are continuous and every- where dense; • Indifference curves slope downward to the right; and • Indifference curves do not intersect; C U2 U1 K 0
General Equilibrium C E CE U PPF K O KE