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This introduction to production possibilities explores the maximum output of two products using available resources. The Production Possibilities Curve (PPC) visually represents efficient (points A-E), inefficient (point G), and unattainable (point F) production levels. It emphasizes opportunity cost, highlighting the trade-offs between producing different goods. Additionally, the distinction between positive statements (describing reality) and normative statements (expressing value judgments) is explained, enhancing our understanding of economic analysis and decision-making.
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Introduction Part 2 Production Possibilities Positive vs Normative Statements
Production Possibilities • The maximum amount of two products that can be produced using all available resources efficiently.
Production Possibilities • The maximum amount of two products that can be produced using all available resources efficiently.
Production-Possibilities Curve • By plotting all the points onto a graph and connecting the points we create a line called the production-possibilities curve. • The curve shows all the possible combinations of corn and spears that can be produced
Production-Possibilities Curve Point G: Inefficient Point F: Unattainable Points A – E: Efficient
Movement in the PPC • Technological Advance
Movement in the PPC • Economic growth
Production-Possibilities Curve • Opportunity Cost • To produce more spears, a certain amount of corn has to be sacrificed. • Opportunity cost of x spears = amount of corn to be “sacrificed” • The opportunity cost can be found by finding the slope of the line.
Positive vs Normative Statements • Positive statements are statements that describe the world as it is. • Called descriptive analysis • Normative statements express a judgment about whether a situation is desirable or undesirable. • Called prescriptive analysis
Positive or Normative? • "The moon is made of green cheese" • "The world would be a better place if the moon were made of green cheese"
