Well first off let me start of by saying that Production Possibility Graphs have a lot to them but they actually aren't all that complicated. First let me start off by defining opportunity cost. Opportunity Cost is the next best alternative, so if you can't have the ideal, what's the next best thing?
A Production Possibilities Graph shows alternative ways to use an economies resources, but first 4 assumptions must be made: there are two goods, there are fixed resources, there is fixed technology, and full employment of resource.
Types of Efficiency
There are two types of efficiency, allocative efficiency, which is the products that are being produced are the ones most desired by society, and productive efficiency, which is products are being produced in the least costly way.
Nitty Gritty of Production Possibilities Graph
Efficiency is that we're using resources in such a way as to maximize the production of goods and services whilst under-utilization is using fewer resources than an economy is capable of using.
No comments:
Post a Comment