The Production Possibilities Model and Comparative Advantage

The Production Possibilities Model - The production possibilities model can be presented in both a table and in a graph - A production possibility table lists a choice’s opportunity cost by summarizing what Alternative outputs you can achieve with your inputs. - An output is a result of an activity - An input is what you put in production process to achieve an output - A production possibility curve is a curve measuring the maximum combination of outputs That can be obtained from a given number of inputs. - It is a graphical representation of the opportunity cost concept - A PPC is created from a production possibility table by mapping the table in a two- Dimensional graph Increasing Marginal Opportunity Cost - The principle of increasing marginal opportunity cost states that opportunity costs Increase the more you concentrate on the activity. Comparative Advantage - The reason the opportunity cost of guns increases as we produce more guns is that some Resources have comparative advantage over other resources. - A resource has comparative advantage if it could be better suited to the Production of one good than another Efficiency - Productive efficiency is achieving as much output as possible from a given amount of Inputs or resources

Distribution and Productive Efficiency - The productive possibility curve focuses on efficiency and ignore distribution - If a method of production will change income distribution we cannot determine if that Method is efficient or not. - Efficiency has meaning when analyzing a particular goal