The focus of macroeconomics is often on a country (or even larger entities like the whole world) and how its markets interact to produce large-scale phenomena that economists refer to as aggregate variables. Macroeconomics and microeconomics are the two most general fields in economics. Macroeconomists study topics such as output/ GDP (Gross Domestic Product) and national income, unemployment (including unemployment rates), price indices and inflation, consumption, saving, investment, energy, international trade, and international finance. This includes regional, national, and global economies. Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. Marginal opportunity cost is also known as the marginal rate of transformation.(Production and national income) Macroeconomics takes a big-picture view of the entire economy, including examining the roles of, and relationships between, firms, households and governments, and the different types of markets, such as the financial market and the labour market Note: Production possibility curve is also known as Production possibility frontier or transformation curve. So, the PPC curve will look like this: Straight line PPC Since, here MOC is constant and is equal to 4. Look at the below production possibility schedule: If the marginal opportunity cost is constant, then the production possibility curve will be a negatively sloped straight line(like a demand curve).Here, MOC is decreasing so PPC will be convex in shape like this: Convex shaped PPC Note: Again minus sign is ignored while calculating MOC because PPC is always negatively sloped Have a look at another production possibility schedule where the slope MOC is in decreasing order: If the marginal opportunity cost is decreasing, then the production possibility curve is convex in shape.Here, MOC is increasing, so the PPC will be concave shaped like this: Concave shaped PPC Note: PPC is always negatively sloped, so we ignore the minus sign of MOC. If the marginal opportunity cost is increasing, then the production possibility curve is concave in shape.Let’s see what are the three main shapes of the production possibility curve.: With the help of marginal opportunity cost, we can easily depict the shape of the production possibility curve. It is read as a sacrifice in the production of good Y, to produce more units of good X (or change in Y over a change in X). To construct the production possibility curve we calculate marginal opportunity cost using the slope formula. Marginal Opportunity Cost (MOC) refers to the rate at which the production (or quantity) of one commodity is sacrificed (Good Y) to produce one more unit of other commodities (Good X). This is the slope of the production possibility curve. Have a look at the following table: Production Possibilitiesīefore constructing the Production Possibility Curve, we will also understand its slope concept. Production Possibility schedule is a table that shows different production possibilities of two goods, given the resources and technique of production. To construct the PPC, we need a production possibility schedule and we need to understand the concept of the slope of the production possibility curve which is called ‘Marginal Opportunity Cost’. As, we have two goods assumptions, whatever resources we are using for the production of two goods, those resources will not be efficient in producing both goods equally. The resources are not equally efficient in the production of all the goods.Whatever resources we have will be used properly with nothing remaining idle or unused. This means, if an economy has started working with the capital-intensive technique it will remain the same during the entire production process and will not change to the labor-intensive technique in between. So, whatever technique of production and economy is using will remain the same. Like the size of land, or the number of laborers working will remain constant. While constructing the PPC, some assumptions are to be kept in mind: Why do we do that? Well, it is easy to explain economics subjects using two dimensions, we can represent two goods with the help of the X-axis and Y-axis. So, we start with an economics subject considering that each economy only produces two goods. This is a curve that shows the different production possibilities or the production combination of two goods that an economy can produce, given the resources and technique of production. Meaning of The Production Possibility Curve (PPC)
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