Production%20Possibilities%20Frontier

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Production Possibilities Frontier
Consumer Goods

• Production Possibilities Frontier (PPF) shows
  all possible combinations of two products
  (Consumer Goods and Capital Goods) that a country
  can produce with available technology and full
  employment of all resources.

PPF
0
Capital Goods
2
Production Possibilities
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A Production Possibility Frontier

• Suppose that the production possibility frontier
  can be represented by

To find the slope, we can solve for Y
If we differentiate
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A Production Possibility Frontier
When X5, Y13.2, the slope -2(5)/13.2 -.76
When X10, Y5, the slope -2(10)/5 -4 The
slope rises as X rises.
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Indifference Curves

• An Indifference Curve represents all combinations
  of market baskets that provide a consumer with
  the same level of satisfaction.

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Characteristics of Indifference Curves

• Indifference curves are continuous and every-
  where dense
• Indifference curves slope downward to the right
  and
• Indifference curves do not intersect

C
U2
U1
K
0
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General Equilibrium
C
E
CE
U
PPF
K
O
KE