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## Macroeconomics

### Course: Macroeconomics>Unit 1

Lesson 2: Opportunity cost and the Production Possibilities Curve

# Production Possibilities Curve as a model of a country's economy

In this video, Sal explains how the production possibilities curve model can be used to illustrate changes in a country's actual and potential level of output. Concepts covered include efficiency, inefficiency, economic growth and contraction, and recession. When an economy is in a recession, it is operating inside the PPC. When it is at full employment, it operates on the PPC.

## Want to join the conversation?

• ahh yes but, what if Utenselandia just made sporks? then they could put double the effort into one utensil, that serves for a spoon and a fork.
• Then you could not have a two-dimensional model, which is the whole point of the PPC. It would be one-dimensional. Creative thinking, however.
• Why is the PPC continuous if only discrete values could be meaningful? Shouldn't it be more of a staircase shape? For example, you wouldn't produce 4.5 forks and .5 spoons.
• It is a curve because the graph shows the average values over a certain period of time, which would be continuous.
• How do you represent 3 things other than 2
• You would need a three-dimensional graph! That's exceedingly difficult to represent in 2 dimensions, so usually we restrict our analysis with this model with two goods. A common "trick" is to lump goods together by characteristics, like having consumption goods on one axis and capital goods on the other.
• With more rabbits would require more forks and with more berries would require more spoons. These nations could trade easily.
• Why doesn't Sal mention humans as a resource? If there would be no one to figure out the use of the other resources, there would no growth.
• He did mention labor. At about in the video. He talked about it all though the video too. Labor == Human resources.
• In regards back in Where Platelandia attacks I wanted to ask about Innovation and to help understand I am going to use a few "what if..." scenarios. If a worker finds a way to make spoons and forks faster by creating sporks then that concludes a new technology, but also this allows workers to make more with less seemingly reducing labor. But because of this new factories have been made or re-compensated to fit these new requirements making a change in Capital. What I am getting at is where does innovation stand? Is it its own factor/"Scarcity" that makes growth because of the effects it has? Does it fall under specifically Technology, Labor, Capital, or Land or can it be all of them? For a scenario to help, if Platelandia attacks and because of this growing war a new way of armament is formed the Spork. Even with the destroyed factories, less laborers, etcetera there is still an increase of production. Would this be a cause of the Decreasing O.C. (Opportunity Cost) curve because of the situation 'if what use to be the forks and/or spoons at the vertical line going down and the other line horizontal representing sporks slowly increasing?
• Innovation is generally counted under technology, and can enhance any of the other factors of production. Depending on the nature of the technological change, it can either shift a PPC out or change the shape of the PPC.
• what would happen when there is a curve in the same curve?
• A curve within the same curve suggests a changing rate of increasing opportunity cost, highlighting shifts in trade offs between different activities as resource allocation changes.
• if contraction takes place that means that the PPC moves inwards or towards the origin and a new PPC is drawn. then if any point lies on the new PPC then is it at maximum efficiency?(even though all the factors of production reduced they will be working at their maximum capacity)

hope you could understand my question
• Yes, even if the PPC shifts inward due to decreased investment, lower economic growth, decreased productivity/technology or other factors, any point on the PPC still represents max efficiency production. While the economy's productive capacities have decreased, resources still may be used to their maximum potential at a decreased rate, if that makes sense. So the same concepts still apply where any point on the curve is maximum efficiency.