Class #21 "Production Possibilities Frontier" (10/21/2011)

The key of success of trade is just re-locating goods efficiently. 

Trade Example

--Mike and Rizzo have the same yard and drive way.

• Before
• Mike
• 80 minutes to weed
• 40 minutes to mow
• TOTAL: 120 minutes
• Rich
• 120 minutes to weed
• 120 minutes to mow
• TOTAL: 240 minutes

Offer: Rich weed 3/4 of Mike's drive if Mike mows his yayd. 

• After
• Mike
• 20 minutes to weed (1/4 of 80)
• 80 minutes to mow. (Both lawns)
• TOTAL: 100 minutes
• Rich
• 210 minutes to weed (His property+90 minutes of Mike's)
• 0 minutes 
• TOTAL: 210 minutes
• Trade EFFECTIVE: Both benefit. 

Production Possibilities Frontier (PPF)/ Production Possibilities Curve (PPC)

-All points on the line are possible

-All points outside the line are not

-Absolute advantage

-All points on PPC= "Productively Efficient"

-Slope must take trade offs between goods

-Law of Diminished Return

-Economic Growth: More resources, technology and trade. 

-Rizzo

Daniel Gaona