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What is an economic model?

What is an economic model?. It is a simplified representation of economic activities, systems, or problems. PRODUCTION POSSIBILITY CURVES. Who uses PPC’s?. Anyone can use PPC’s, but often businesses use them. Why do they use PPC’s?.

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What is an economic model?

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  1. What is an economic model? It is a simplified representation of economic activities, systems, or problems

  2. PRODUCTION POSSIBILITY CURVES

  3. Who uses PPC’s? Anyone can use PPC’s, but often businesses use them.

  4. Why do they use PPC’s? Because they have a graphic representation of what resources they are utilizing and whether or not they are working at efficiency. They can also see their opportunity cost of producing more of one good over another

  5. Working Notice this is a straight line. Not all ppc’s are a straight line. 4 hours How do they use PPC’s?Let’s look at an example … 3 hours 2 hours 1 hour 3 hours 1 hour 2 hours 4 hours Free time

  6. WE MAKE FOUR ASSUMPTIONS WHEN DEALING WITH PPC’s:

  7. There are no more resources available for use in production. All resources are fixed. 5 =

  8. = Full Production 2. All resources are fully employed. You are using every resource available to you for your production.

  9. 3. Technology is fixed. The technology you are using for production is the best technology you have available to you.

  10. 4. You can only produce two goods. For the sake of graphing the curve, you can only produce two goods. http://www.classzone.com/cz/books/econ_cnc/resources/htmls/animated_economics/ec01_anim_learnppc.html

  11. Law of Increasing Opportunity Costs: As production switches from one product to another, more resources are required to increase the production of the second product

  12. Cakes vs. Cookies A 15 10 5 0 PRODUCTION IMPOSSIBILITY C A K E S B EFFICIENCY UNDERUTILIZATION C 20 40 60 80 100 COOKIES

  13. Cakes vs. Cookies A 15 10 5 0 What is the opportunity cost of increasing cake production from 7 to 11 cakes? 30 cookies What is the opportunity cost of increasing cake production from 11 to 15 cakes? C A K E S B 35 cookies C 20 40 60 80 100 COOKIES

  14. Which is what? The Law of Increasing Opportunity Costs: http://www.classzone.com/cz/books/econ_cnc/resources/htmls/animated_economics/ec01_anim_ppcshift.html

  15. Let’s take a look at shifts of a PPC over time…

  16. Historical PPC’s: A Shift in PPC’s It’s 1945 and the US is producing for … Here is what our curve looked like in 1945. It’s 1955 and the US is producing for … Here is what our curve looked like in 1955. Now let’s go back to 1935 and the US is not producing so much because of … Here is what our curve looked like in 1935. BUTTER 1945 1955 1935 GUNS

  17. 50 0 40

  18. 50 0 40 20 30 40 20 60 80 10

  19. Tomatoes = 2 spaces Green peppers = 1 space

  20. 50 Tomatoes 40 30 20 Green Peppers 10 0 20 40 60 80 100

  21. List below the increasing opportunity costs based on your examples : If you grow 50 tomatoes, your opportunity cost is 100 green peppers. If you grow 40 tomatoes, your opportunity cost is 80 green peppers. If you grow 30 tomatoes, your opportunity cost is 60 green peppers. If you grow 20 tomatoes, your opportunity cost is 40 green peppers. If you grow 10 tomatoes, your opportunity cost is 20 green peppers.

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