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Read the text to yourself and be ready for a comprehension check-up

 

Under the field of macroeconomics, the production possibility frontier (PPF) represents the point at which an economy is most efficiently producing its goods and services and, therefore, allocating its resources in the best way possible. If the economy is not producing the quantities indicated by the PPF, resources are being managed inefficiently and the production of society will dwindle. The production possibility frontier shows there are limits to production, so an economy, to achieve efficiency, must decide what combination of goods and services can be produced.

Production Possibility Frontier(PPF)

When the PPF shifts outwards, we know there is growth in an economy. Alternatively, when the PPF shifts inwards it indicates that the economy is shrinking as a result of a decline in its most efficient allocation of resources and optimal production capability A shrinking economy could be a result of a decrease in supplies or a deficiency in technology.

The production-possibility frontier can also illustrate the inherent need to choose among limited opportunities of many kinds. People have limited time available to pursue different activities.

Efficiency is one of the central concepts of economics. Efficiency means absence of waste, or using the economy's resource as effectively as possible to satisfy people's needs and desires. More specifically, the economy is producing efficiently when it cannot produce more of one good without producing less of another-when it is on the production-possibility frontier.

Productive efficiency occurs when society cannot increase the output of one good without cutting back on another good. An efficient economy is on its production-possibility frontier.

The production-possibility frontier provides a rigorous definition of scarcity.

Economic scarcity refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources, which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. The PPF shows the outer limit of the combination of producible goods.

Scarcity is a reflection of the fact that the PPF constrains our living standards.

The production-possibility schedule can also illustrate the three basic problems of economic life: what, how and for whom. What goods are produced and consumed can be depicted by the point that ends up getting chosen on the PPF.

How goods are to be produced involves an efficient choice of methods and a proper assignment of different amounts and kinds of limited resources to the various industries. For whom goods are to be produced cannot be discerned from the PPF.

OPPORTUNITY COST

Life is full of choices. Because resources are scarce, we are constantly deciding which good we want to buy or which activity we will pursue. Should we go to a movie or read a book? Should we take a vacation or get some extra work done? In each of these cases, making a choice in a world of scarcity requires us to give up alternative activities, in effect costing us the opportunity to do something else. That alternative forgone is called the opportunity cost.



Opportunity cost is the value of what is foregone in order to have something else. This value is unique for each individual. You may, for instance, forgo ice cream in order to have an extra helping of mashed potatoes. For you, the mashed potatoes have a greater value than dessert. The opportunity cost of an individual's decisions is determined by his or her needs, wants, time and resources (income).

This is important to the PPF because a country will decide how to best allocate its resources according to its opportunity cost.

A trade-off (or tradeoff) is a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect. It implies a decision to be made with full comprehension of both the upside and downside of a particular choice.

In economics the term is expressed as opportunity cost, referring to the most preferred alternative given up. A trade-off, then, involves a sacrifice that must be made to obtain a certain product, rather than other products that can be made using the same required resources. For a person going to a basketball game, its opportunity cost is the money and time expended; say that would have been spent watching a particular television program.

 

Task 22

Copy out the dominant noun/verb/adjective for each part and find the words associated with them in meaning.

 

Task 23


Date: 2015-12-11; view: 934


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