Macroeconomics

‭This‬‭PPC‬‭shown‬‭above‬‭represents‬‭the‬‭production‬‭choices‬‭of‬‭an‬‭economy‬‭that‬‭only‬‭produces‬‭two‬‭goods:‬ ‭cars‬‭on‬‭the‬‭x-axis‬‭(horizontal‬‭line‬‭at‬‭the‬‭bottom)‬‭and‬‭laptops‬‭on‬‭the‬‭y-axis‬‭(vertical‬‭line‬‭on‬‭the‬‭left‬‭side).‬ ‭Assuming‬‭that‬‭all‬‭available‬‭resources‬‭are‬‭used‬‭effciently,‬‭this‬‭economy‬‭can‬‭produce‬ ‭any‬‭combination‬ ‭of‬ ‭laptops‬‭and‬‭cars‬ ‭on‬‭the‬‭PPC‬‭curve‬ ‭such‬‭as‬‭point‬‭A‬‭(200‬‭laptops‬‭and‬‭50‬‭cars),‬‭point‬‭B‬‭(180‬‭laptops‬‭and‬ ‭150 cars), and so on.‬ ‭The‬‭curve‬‭itself‬‭showcases‬‭the‬‭various‬‭choices‬‭an‬‭economy‬‭can‬‭make‬‭when‬‭allocating‬‭its‬‭resources‬‭and‬ ‭applying‬ ‭technology‬ ‭to‬ ‭produce‬ ‭these‬ ‭two‬ ‭products.‬ ‭The‬ ‭curve's‬ ‭shape‬ ‭and‬ ‭position‬ ‭reveal‬ ‭how‬ ‭effciently resources are utilized (to be discussed soon).‬

‭Study Tip‬ ‭A‬‭typical‬‭PPC‬‭usually‬‭features‬‭consumer‬‭goods‬‭and‬‭capital‬‭goods‬‭on‬‭its‬‭axes.‬‭A‬ ‭consumer‬‭good‬ ‭is‬‭one‬ ‭produced‬ ‭for‬ ‭immediate‬ ‭consumption‬ ‭and‬ ‭the‬ ‭satisfaction‬ ‭of‬ ‭wants‬ ‭(e.g.,‬ ‭toys,‬ ‭books),‬ ‭whereas‬ ‭a‬ ‭capital‬‭good‬ ‭is‬‭one‬‭that‬‭contributes‬‭to‬‭the‬‭production‬‭of‬‭other‬‭goods‬‭or‬‭services‬‭(e.g.,‬‭equipment‬‭used‬ ‭in‬‭factories,‬‭coffee‬‭machines‬‭in‬‭shops,‬‭trains).‬‭In‬‭economics,‬‭the‬‭creation‬‭of‬‭capital‬‭(i.e.,‬‭the‬‭purchase‬ ‭or putting in place of equipment, buildings, roads, etc.), is referred to as‬ ‭investment‬ ‭.‬

‭Checkpoint Quiz 2:‬

‭Based on the previous PPC, which combination of goods does this economy produce at point C?‬

‭(Checkpoint answers are located at the end of the chapter under the review question answers.)‬

‭When constructing or analyzing a PPC, always remember the following key assumptions:‬ ‭ ➔ ‬ ‭Focus‬ ‭on‬ ‭Two‬ ‭Goods:‬ ‭The‬ ‭PPC‬ ‭examines‬ ‭the‬ ‭production‬ ‭possibilities‬ ‭of‬ ‭an‬ ‭economy‬ ‭by‬ ‭considering only two goods at a time.‬

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