Production Possibilities Curve
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net
Production Possibilities Curve
Constant Opportunity Cost
Decreasing Opportunity Cost
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net
Absolute Advantage and
Comparative Advantage
•
ABSOLUTE ADVANTAGE
One individual or nation can produce more output with the same
resources as another individual or nation.
•
COMPARATIVE ADVANTAGE
One individual or nation can produce a good at a lower opportunity cost
than another
•
EXAMPLES OF COMPARATIVE ADVANTAGE
Economics professor and secretary
Auto mechanic and medical doctor
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net
Determining Comparative
Advantage (Output Method)
1.
Which nation has an absolute advantage in producing corn?
2.
Which nation has an absolute advantage in producing
sunscreen?
3.
Which nation has a comparative advantage in producing corn?
4.
Which nation has a comparative advantage in producing
sunscreen?
5.
Should Mexico specialize in corn or sunscreen?
6.
Should France specialize in corn or sunscreen?
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net
Movement Along a Demand Curve
As the price declines from P to P1, the quantity increases from
Q to Q1
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net
Shift in Demand
Factors that Shift Demand:
Increase in demand from D to D1 shows that at the same
price (P), the quantity increased from Q to Q1
1.
Number of Consumers
2.
Price of complementary good
3.
Price of substitute good
4.
Consumer income
5.
Expectations about income or
prices
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net
Movement Along a Supply Curve
As the price declines from P1 to P, the quantity decreases from
Q1 to Q.
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net
Shift in Supply
Factors that Shift supply:
1.
Number of suppliers
2.
Prices of resources used to
produce good
3.
Prices of related goods
produced
4.
Technology
5.
Expectations about future
prices
Increase in supply from S to S1 shows that at the
same price (P), the quantity increased from Q to Q1.
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net
Equilibrium Quantity and Price
What happens if the price is $10?
What happens if the price is $6?
What happens if the price is $8?
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net
Calculation of Price Elasticity of Demand
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net
Price Elasticity along a Demand Curve
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net
Effects of Different Demand Elasticities
Which demand curve is more inelastic?
What happens to the equilibrium price and quantity
with an elastic demand curve if supply increases?
What happens to the equilibrium price and quantity
with an inelastic demand curve if supply increases?
Unit 1 : Macroeconomics
National Council on Economic Education
http://apeconomics.ncee.net