So I believe you already understand that…Ī PPF w/Constant Opportunity Cost is a linear line, meaning the line is straight (not curved), and… Other things about a Constant Opportunity Cost of a Production Possibilities Frontier, PPF, or Curve PPC… Productivity is a measure of output, while technology is a tool that can be used to improve productivity. So, while it is true that productivity and technology are related, they are not the same thing. Other factors, such as the skills and training of workers, the availability of capital, and the overall economic environment, also play an important role. However, it is important to remember that technology is not the only factor that affects productivity. In this sense, it is true that productivity can be increased by using technology. This includes both physical tools, such as machines and robots, and intangible tools, such as software and knowledge. In this sense, technology refers to any tool or technique that can be used to improve the production of goods and services. Here the term 'technology' is used in a more general sense. In most cases, productivity and technology are considered to be two separate concepts. ' However, this is not a universally accepted definition. In the definition of productivity it is written that it is (also called technology). This would be represented in a PPC graph as a shift outward of the entire PPC curve. On the other hand, if this economy is making as many donuts and cattle prods as it can, and it acquires more donut machines, it has experienced economic growth because it now has more resources (in this case, capital) available.Instead, they are just using their resources more efficiently and moving to a new point on the PPC.

If they then put all of those donut machines to work, they aren’t acquiring more resources (which is what we mean by economic growth). Graphically, that would be represented by a combination of goods in the interior of their PPC. But half of their donut machines aren’t being used, so they aren’t fully using all of their resources. For example, suppose an economy can make two goods: chocolate donuts and cattle prods. Going from an inefficient amount of production to an efficient amount of production is not economic growth.For example, when you head out to see a movie, the cost of that activity is not just the price of a movie ticket, but the value of the next best alternative, such as cleaning your room. Opportunity costs are expressed in terms of how much of another good, service, or activity must be given up in order to pursue or produce another activity or good. (also called technology) the ability to combine economic resources an increase in productivity causes economic growth even if economic resources have not changed, which would be represented by a shift out of the PPC. When the opportunity cost of a good increases as output of the good increases, which is represented in a graph as a PPC that is bowed out from the origin for example Julissa gives up 2 ‍ fidget spinners when she produces the first Pokemon card, and 4 ‍ fidget spinners for the second Pokemon card, so she has increasing opportunity costs. When the opportunity cost of a good remains constant as output of the good increases, which is represented as a PPC curve that is a straight line for example, if Colin always gives up producing 2 fidget spinners every time he produces a Pokemon card, he has constant opportunity costs. The underemployment of any of the four economic resources (land, labor, capital, and entrepreneurial ability) inefficient combinations of production are represented using a PPC as points on the interior of the PPC.Īn increase in an economy's ability to produce goods and services over time economic growth in the PPC model is illustrated by a shift out of the PPC.Ī decrease in output that occurs due to the under-utilization of resources in a graphical model of the PPC, a contraction is represented by moving to a point that is further away from, and on the interior of, the PPC. Inefficient use (under-utilization) of resources The full employment of resources in production efficient combinations of output will always be on the PPC. The value of the next best alternative to any decision you make for example, if Abby can spend her time either watching videos or studying, the opportunity cost of an hour watching videos is the hour of studying she gives up to do that. (also called a production possibilities frontier) a graphical model that represents all of the different combinations of two goods that can be produced the PPC captures scarcity of resources and opportunity costs.

Price production