1
The Study of Economics
2 The Production
Possibility Frontier Model
3 Comparative Advantage and Trade
SECTION
1
2
BASIC ECONOMIC CONCEPTS
Slide 2
Trade-offs:
The Production Possibility Frontier
• Someone makes a trade-off when they give up
something to get something else.
• The production possibility frontier (PPF)
•
Illustrates the trade-offs facing an economy.
•
Shows the maximum quantity of one good that can be
produced for any given quantity of the other.
2
Slide 3
Application:
Boeing Dreamliner versus Smaller Jets
Slide 4
The Production Possibility Frontier
4
Slide 5
Efficiency
• The PPF illustrates efficiency.
• An economy is efficient in production if it produces at a
point on its PPF.
• An economy is efficient in allocation if it allocates its
resources so that consumers are as well off as possible.
5 of 11
Slide 6
Increasing Opportunity Cost:
“True Cost of Something is What You Give Up to Get It”
6
Slide 7
Economic Growth
• Economic growth allows a sustained rise in
aggregate output.
• Economic growth is shown as an outward shift of the PPF.
• There are two general sources of economic growth.
• An increase in an economy’s resources.
• Progress in technology.
7 of 11
Slide 8
Economic Growth
8 of 11