Economics Basics Production Possibility Frontier, Growth, Opportunity Cost and Trade

Economics Basics Production Possibility Frontier, Growth, Opportunity Cost and Trade Sometimes w? ??k ?u??ti?n? like who inv?nt?d th? ???n?m?? I know Ive ??k?d that ?u??ti?n a couple of tim??. H?w did we g?t there? How did w? g?t t? this ??int in tim? where v?r? thing i? ??l?ul?t?d with ???n?mi? g?in? in mind?Actually, the real ?u??ti?n i? was th?r? ?v?r a time wh?r? economics didnt m?tt?r? Wh?n tr?d? didnt m?tt?r or when a ??r??n didnt w?nt to gr?w hi? bu?in????I gu??? not.Wh?n man started b???ming wise, h? ?t?rt?d inv?nting economic th??ri??, ?v?n th?ugh ?t the tim?, they weren’t thought as theories.Man b?g?n t? ?t?r? f??d.Eventually, h? ?t?rt?d tr?ding hi? own food f?r ??m?thing else h? didnt h?v?. It wasnt l?ng before th? b?rt?r system was ?ffi?i?ll? inv?nt?d.In the end, th?t t?? ?v?lv?d into th? money system (g?ld ?t th? tim?) ?nd n?w, P???r m?n??. E??n?mi?? principles h?v? ?lw??? been with m?n.Aft?r all, man th?? say is a social ?nim?l.In thi? ?rti?l?, w? w?uld be discussing b??i? ???n?mi?? concepts. Because economics inv?lv?? a l?t of diff?r?nt sub di??i?lin ??, w? w?uld focus onProduction P???ibilit? frontierGr?wthO???rtunit? costTr?d?BUT FIRST OFF, WHAT IS ECONOMICS? Th? discipline w?? r?n?m?d in the l?t? 19th century primarily du? to Alfred M?r?h?ll from political ???n?m? t? ???n?mi?? ?? a shorter t?rm f?r ???n?mi? ??i?n??.At th?t tim?, it b???m? more open t? rig?r?u? thinking and made in?r????d u?? ?f m?th?m?ti??, whi?h helped ?u???rt ?ff?rt? to have it ?????t?d ?? a ??i?n?? and ?? a separate di??i?lin? ?ut?id? ?f political science and ?th?r social ??i?n???.The ultimate g??l ?f ???n?mi?? i? to improve the living ??nditi?n? of ????l? in th?ir everyday life.E??n?mi?? is a complex subject filled with a m?z? ?f ??nfu?ing terms and d?t?il? which can b? diffi?ult to ?x?l?in.Ev?n ???n?mi?t? h?v? trouble d?fining ?x??tl? what ???n?mi?? m??n?. Y?t, there i? n? d?ubt th?t th? economy and the things we l??rn thr?ugh economics affect ?ur ?v?r?d?? liv??.In short, economics i? th? ?tud? ?f how ????l? and gr?u?? ?f ????l? use th?ir r???ur???. M?n? ? ??rt?inl? i? ?n? ?f those resources, but other thing? ??n play a role in economics ?? w?ll.Economics i? divid?d int? tw? g?n?r?l ??t?g?ri??: mi?r????n?mi?? and m??r????n?mi??. On? l??k? ?t the individual m?rk?t? while th? other l??k? at ?n entire economy.Fr?m there, we can n?rr?w ???n?mi?? int? a numb?r ?f ?ubfi?ld? ?f ?tud?.Th??? include ???n?m?tri??, ???n?mi? development, agricultural ???n?mi??, urb?n ???n?mi??, Pr?du?ti?n P???ibilit? Frontier, Gr?wth, O???rtunit? Cost, Trade ?nd mu?h m?r?.If you have ?n int?r??t in h?w th? world works ?nd how fin?n?i?l markets ?r indu?tr? outlooks affect the economy, ??u might ??n?id?r studying ???n?mi??.Its a f???in?ting fi?ld and has career potential in a number ?f disciplines, fr?m fin?n?? t? sales t? th? government.Macroeconomics ?nd Mi?r????n?mi??Th? m??t common divi?i?n ?f ???n?mi?? i? th?t which separates m??r????n?mi?? fr?m mi?r????n?mi??. Th? diff?r?n?? b?tw??n macro and micro w?? introduced in 1933 b? th? Norwegian, Ragnar Fri??h.The ?rigin of the words says a lot about th?ir m??ning: in Gr??k, m??r? m??n? big ?nd mi?r? m??n? ?m?ll.Mi?r????n?mi??Microeconomics i? th? ?tud? of d??i?i?n? th?t people and bu?in????? make r?g?rding th? ?ll???ti?n of resources ?nd ?ri??? of g??d? and ??rvi???. Thi? means ?l?? t?king into ????unt t?x?? and r?gul?ti?n? ?r??t?d b? g?v?rnm?nt?.Microeconomics f??u??? on supply ?nd demand and ?th?r forces th?t determine th? ?ri?? l?v?l? ???n in th? ???n?m?.F?r ?x?m?l?, mi?r????n?mi?? would l??k at how a specific ??m??n? could maximize it? ?r?du?ti?n and ?????it?, ?? th?t it could lower ?ri??? ?nd b?tt?r ??m??t? in it? indu?tr?.M??r????n?mi??John M??n?rd Keynes is ?ft?n ?r?dit?d with f?unding m??r????n?mi??, wh?n he initi?t?d the use of monetary ?ggr?g?t?? t? ?tud? br??d ?h?n?m?n?.Macroeconomics, i? th? field of ???n?mi?? that ?tudi?? th? b?h?vi?r of th? ???n?m? as a wh?l?, n?t ju?t of specific companies, but ?ntir? indu?tri?? and ???n?mi??.It looks ?t economy-wide ?h?n?m?n?, ?u?h ?? Gr??? D ?m??ti? Pr?du?t (GDP) and h?w it i? ?ff??t?d by changes in unemployment, n?ti?n?l income, r?t? of gr?wth, and ?ri?? levels.F?r ?x?m?l?, macroeconomics would l??k at h?w ?n in?r????/d??r???? in net exports w?uld ?ff??t a n?ti?n? capital ????unt ?r h?w GDP w?uld be ?ff??t?d b? th? unemployment rate.TR?D? Th? t?rm “trading” ?im?l? m??n? “exchanging one it?m f?r another”. W? usually understand thi? t? be th? exchanging ?f g??d? f?r m?n?? ?r in other words, ?im?l? buying ??m?thing.Tr?d? i? a b??i? ???n?mi? ??n???t inv?lving th? buying and selling ?f g??d? ?nd ??rvi???, with ??m??n??ti?n paid by a bu??r to a seller, or the exchange ?f g??d? ?r ??rvi??? between ??rti??.Th? m??t ??mm?n m?dium ?f exchange f?r th??? tr?n???ti?n? is m?n??, but tr?d? m?? ?l?? b? ?x??ut?d with the exchange of g??d? or ??rvi??? between b?th ??rti??, r?f?rr?d t? as a barter, or payment with virtual ?urr?n??, th? m??t ???ul?r of whi?h is bitcoin.In fin?n?i?l m?rk?t?, trading r?f?r? t? th? bu?ing ?nd selling ?f securities, ?u?h ?? th? purchase ?f stock on th? floor of th? N?w York St??k Exchange (NYSE).Tr?d? refers to tr?n???ti?n? ranging in ??m?l?xit? fr?m th? ?x?h?ng? ?f baseball ??rd? between collectors to multin?ti?n?l policies setting protocols for im??rt? ?nd exports between ??untri??.Regardless ?f th? ??m?l?xit? ?f th? tr?n???ti?n, trading i? facilitated thr?ugh three primary t???? ?f exchanges. Tr?d?? are ?x??ut?d with th? ???m?nt ?f ??v?r?ign ?urr?n??, the ?x?h?ng? ?f g??d? ?nd services, ?r payment with a virtual ?urr?n??.Mediums ?f ?x?h?ng?M?n??, whi?h also fun?ti?n? as a unit ?f account ?nd a ?t?r? ?f v?lu?, is th? m??t common medium of ?x?h?ng?, providing a v?ri?t? ?f m?th?d? for fund transfers b?tw??n bu??r? ?nd ??ll?r?, in?luding cash, ACH tr?n?f?r?, credit ??rd? ?nd wir?d fund?.Money’s attribute as a ?t?r? ?f v?lu? also provides ???ur?n?? that fund? r???iv?d by ??ll?r? as ???m?nt for g??d? ?r services ??n be u??d t? m?k? ?ur?h???? of ??uiv?l?nt value in th? futur?.Cash less trades inv?lving th? exchange ?f goods ?r ??rvi??? between ??rti?? ?r? r?f?rr?d to ?? b?rt?r tr?n???ti?n?. Whil? barter is ?ft?n ?????i?t?d with ?rimitiv? or und?v?l???d ???i?ti??, th??? tr?n???ti?n? are also u??d b? l?rg? ??r??r?ti?n? ?nd individu?l? as a m??n? ?f g?ining g??d? in exchange for excess, und?rutiliz?d ?r unwanted ????t?.For ?x?m?l?, in th? 1970?, P???iC? In?. set u? a barter ?gr??m?nt with the Ru??i?n g?v?rnm?nt to tr?d? ??l? syrup f?r St?li?hn??? v?dk?. In 1990, th? d??l w?? expanded to $3 billi?n dollars ?nd in?lud?d 10 Russian-built ?hi??, whi?h PepsiCo leased ?r sold in the years f?ll?wing th? ?gr??m?nt.A? th? n?w??t m?dium ?f ?x?h?ng?, virtual ?urr?n?i?? do not ?x???? h?ld?r? t? f?r?ign ?x?h?ng? ri?k?, provide ?n?n?mit? between tr?ding ??rtn?r? if desired ?nd avoid th? often-significant ?r?????ing f?? f?r credit cards.Th? most ???ul?r virtu?l ?urr?n?? i? bitcoin, which w?? intr?du??d in 2009. Bitcoins are h?ld in virtu?l wallets and can b? u??d with a gr?win g number of m?r?h?nt?, in?luding W?rdPr???.??m ?nd Ov?r?t??k.??m.The virtual currency i? ?l?? ???ul?r with small bu?in?????, du? in ??rt t? th? l??k ?f ?r?????ing f???.Supply ?nd d?m?nd in tr?dingIncrease in demand m??n? an increase in ?ri??W? ??n ?x?l?in this using a ?im?l? everyday ?x?m?l? of bu?ing f??d. L?t’? ??? ??u ?r? in a m?rk?t and there are ?nl? ten ???l?? l?ft on a stall. Thi? is th? only place where ??u can bu? ???l??.If you are th? ?nl? ??r??n ?nd you ?nl? w?nt a couple of apples, then th? m?rk?t ?t?ll ?wn?r will m??t likely sell them t? you ?t a r????n?bl? ?ri??.Now lets say th?t fift??n ????l? ?nt?r the m?rk?t and th?? all w?nt apples. To m?k? sure th?t th?? will ??tu?ll? g?t th?m b?f?r? the ?th?r? d?, th?? are willing to ??? m?r? f?r th?m. H?n??, the m?rk?t ?t?ll owner ??n put th? price up, b???u?? h? kn?w? th?t th?r? i? m?r? d?m?nd for th? ???l?? than ?u??l? ?f th?m.Once th? apples r???h a ?ri?? ?t whi?h th? customers think th?? ?r? too ?x??n?iv?, th?? will th?n ? t?? bu?ing th?m.Wh?n the m?rk?t ?t?ll owner r??li??? th?t h? i? n?t ??lling hi? ???l?? anymore because they ?r? t?? ?x??n?iv?, h? will ?t?? r?i?ing th? price ?nd it m?? come b??k d?wn t? a level, ?t whi?h ?u?t?m?r? will start t? buy the ???l?? ?g?in.In?r???? in supply m??n? a d??r???? in priceLet’s ??? th?t suddenly ?n?th?r m?rk?t ?t?ll ?wn?r ??m?? int? th? market ?nd h?? ?v?n more ???l?? t? ??ll.Th? ?u??l? ?f ???l?? h?? n?w in?r????d dramatically.It ?t?nd? to r????n that the ????nd m?rk?t ?t?ll ?wn?r may w?nt to ??ll ???l?? at a cheaper price th?n the fir?t stall ?wn?r to entice ?u?t?m?r?. It ?l?? stands t? r????n th?t the customers w?uld probably w?nt t? buy at th? lower ?ri??.S??ing thi?, th? fir?t ?t?ll ?wn?r will m??t lik?l? bring hi? ?ri??? down. Th? sudden in?r???? in ?u??l? has th?r?f?r? br?ught the ?ri?? of the apples down.Th? price at whi?h d?m?nd matches ?u??l? i? called th? “market ?ri??”, i.e. the ?ri?? l?v?l at which b?th th? market ?t?ll owner and th? customers ?gr?? on both a ?ri?? ?nd numb?r of ???l?? sold.WH?T I? OPPORTUNITY C??T The fundamental ?r?bl?m ?f economics is th? issue ?f scarcity. Th?r?f?r? we are ??n??rn?d with the optimal u?? ?nd distribution of these ???r?? r???ur???.Wherever there is ???r?it? we ?r? f?r??d to m?k? ?h?i???. If w? have $20, w? ??n ???nd it ?n ?n economic t?xtb??k, ?r w? can ?nj?? a meal in a r??t?ur?nt.If w? ???nd th?t $20 ?n a t?xtb??k, th? ????rtunit? ???t i? th? restaurant meal w? cannot ?ff?rd t? pay.O???rtunit? cost thus r?f?r? to a b?n?fit that a person could have r???iv?d, but g?v? u?, t? t?k? ?n?th?r ??ur?? of ??ti?n. St?t?d differently, ?n ????rtunit? cost r??r???nt? ?n ?lt?rn?tiv? giv?n up wh?n a d??i?i?n is made.Thi? ???t i?, th?r?f?r?, most r?l?v?nt for two mutually ?x?lu?iv? events.In investing, it i? th? diff?r?n?? in return b?tw??n a ?h???n investment ?nd ?n? th?t i? n??????ril? passed up.Sim?l? stated, ?n ????rtunit? ???t i? th? cost ?f a mi???d ????rtunit?. It i? th? opposite ?f the b?n?fit that w?uld have b??n gained h?d ?n action, n?t taken, been t?k?n the mi???d opportunity. Thi? i? a ??n???t u??d in ???n?mi??.A??li?d t? a bu?in??? decision, th? opportunity cost might r?f?r t? th? profit a ??m??n? ??uld have earned fr?m its ???it?l, equipment, ?nd real ??t?t? if th??? ????t? h?d b??n u??d in a different way. Th? concept of ????rtunit? cost may b? applied t? m?n? diff?r?nt situations. It should b? considered whenever ?ir?um?t?n??? ?r? such that ???r?it? n?????it?t?? th? ?l??ti?n ?f one ??ti?n over ?n?th?r.O???rtunit? ???t i? u?u?ll? defined in t?rm? of m?n??, but it m?? also b? ??n?id?r?d in terms of tim?, ??r??n-h?ur?, mechanical output, or ?n? ?th?r finite r???ur??.Examples of Opportunity CostsOn? w?? t? d?m?n?tr?t? th? concept of ????rtunit? ???t? i? through an ?x?m?l? of inv??tm?nt capital. A ?riv?t? inv??t?r ?ur?h???? $10,000 in a ??rt?in ???urit?, such ?? shares in a ??r??r?ti?n, and after ?n? ???r th? investment has appreciated in value t? $10,500. The inv?? t?r? return i? 5 ??r??nt.Th? investor considers other ways th? $10,000 ??uld have b??n invested, ?nd di???v?r? a b?nk certificate with ?n annual ?i?ld ?f 6 percent ?nd a government bond that ??rri?? an ?nnu?l yield of 7.5 ??r??nt. After a ???r, the bank ??rtifi??t? w?uld h?v? appreciated in v?lu? t? $10,600, ?nd th? g?v?rnm?nt b?nd would have appreciated to $10,750.Th? opportunity ???t ?f purchasing ?h?r?? is $100 r?l?tiv? t? the b?nk ??rtifi??t?, ?nd $250 relative t? the g?v?rnm?nt b?nd. Th? investors d??i?i?n to ?ur?h??? shares with a 5 ??r??nt r?turn ??m?? ?t th? cost ?f a l??t ????rtunit? to ??rn 6 ?r 7.5 ??r??nt.Expressed in t?rm? ?f tim?, ??n?id?r a ??mmut?r wh? chooses t? driv? to w?rk, r?th?r than using public tr?n???rt?ti?n.B???u?? of h??v? tr?ffi? and a l??k ?f ??rking, it t?k?? th? ??mmut?r 90 minut?? to g?t to w?rk. If th? ??m? commute ?n public transportation w?uld h?v? taken only 40 minutes, the ????rtunit? cost ?f driving w?uld b? 50 minut??. Th? ??mmut?r might n?tur? ll? h?v? chosen driving ?v?r public transportation b???u?? she had a u?? for th? ??r after w?rk ?r because ?h? could n?t h?v? anticipated tr?ffi? d?l??? in driving.Experience ??n ?r??t? a b??i? for futur? decisions, ?nd th? ??mmut?r m?? be l??? in?lin?d t? driv? n?xt tim?, kn?wing th? ??n???u?n??? ?f tr?ffi? ??ng??ti?n.In another ?x?m?l?, a ?m?ll bu?in??? ?wn? th? building in whi?h it ???r?t??, ?nd thus ???? no r?nt f?r office ?????.But thi? d??? n?t m??n th?t th? ??m??n?? cost f?r ?ffi?? ????? is z?r?, ?v?n th?ugh an ????unt?nt might treat it that w??. In?t??d, th? ?m?ll bu?in??? ?wn?r mu?t ??n?id?r the ????rtunit? ???t ?????i?t?d with r???rving th? building f?r it? ?urr?nt u??.P?rh??? the building ??uld h?v? b??n r?nt?d out t? ?n?th?r company, with th? bu?in??? it??lf r?l???t?d t? a l???ti?n with a high?r l?v?l of ?u?t?m?r traffic.The f?r?g?n? money fr?m these ?lt?rn?tiv? uses of th? ?r???rt? i? ?n ????rtunit? ???t ?f u?ing the ?ffi?? ?????, ?nd thu? ?h?uld be ??n?id?r?d in calcul ations ?f th? small businesss ?x??n???.Application ?f ????rtunit? ???tWhen making big decisions like bu?ing a home or starting a bu?in???, you will lik?l? ??ru?ul?u?l? r????r?h th? ?r?? ?nd ??n? ?f your financial d??i?i?n, but m??t of ?ur day-to-day ?h?i??? ?r?nt made with a full understanding of th? potential opportunity ???t?.If th??r? ??uti?u? ?b?ut a purchase, m??t people just l??k ?t th?ir savings ????unt ?nd check th?ir b?l?n?? before ???nding m?n??.F?r the m??t ??rt, w? d?nt think ?b?ut th? things that we mu?t giv? up wh?n w? make th??? d??i?i?n?.However, th?t kind of thinking could b? dangerous. The ?r?bl?m lies wh?n ??u never look ?t wh?t ?l?? ??u ??uld d? with ??ur m?n?? or buy things blindl? without considering th? l??t opportunities.Bu?ing t?k??ut for lun?h ?????i?n?ll? can b? a wise d??i?i?n, especially if it g?t? you ?ut ?f th? ?ffi?? when ??ur b??? i? thr?wing a fit.H?w?v?r, bu?ing one ?h????burg?r ?v?r? d?? for the n?xt 25 ???r? could l??d to ??v?r?l missed ????rtuni ti??.Aside fr?m the potentially harmful h??lth ?ff??t? ?f high ?h?l??t?r?l, investing th?t $4.50 ?n a burg?r ??uld add u? t? ju?t ?v?r $52,000 in th?t tim? fr?m?, ???uming a v?r? d??bl? rate of r?turn ?f 5%.Thi? is just ?n? ?im?l? ?x?m?l?, but th? core message h?ld? tru? f?r a v?ri?t? ?f situations. From choosing whether t? inv??t in ??f? tr???ur? b?nd? or deciding t? ?tt?nd a ?ubli? ??ll?g? over a ?riv?t? one in order t? g?t a d?gr??, th?r? ?r? ?l?nt? ?f thing? t? ??n?id?r wh?n m?king a d??i?i?n in ??ur personal fin?n?? lif?.While it m?? ??und like overkill to have t? think ?b?ut ????rtunit? ???t? every tim? ??u w?nt t? bu? a ??nd? b?r ?r g? ?n vacation, it? ?n im??rt?nt tool t? u?? to m?k? the b??t u?? of your money.An?th?r w?? t? d?m?n?tr?t? the concept of opportunity costs i? through ?n example of inv??tm?nt ???it?l. A private inv??t?r purchases $10,000 in a certain security, such ?? shares in a ??r??r?ti?n, and ?ft?r ?n? ???r th? inv??tm?nt h?? ???r??i?t?d in v?lu? to $10,500. Th? inv??t?r? return i? 5 ??r??nt.The investor ??n?id?r? other w??? th? $10,000 ??uld h?v? b??n inv??t?d, ?nd di???v?r? a b?nk certificate with an annual ?i?ld ?f 6 ??r??nt and a government b?nd that carries an annual yield of 7.5 ??r??nt. Aft?r a ???r, th? bank ??rtifi??t? w?uld h?v? ???r??i?t?d in value t? $10,600, ?nd th? g?v?rnm?nt bond would have ???r??i?t?d to $10,750.The ????rtunit? ???t of purchasing shares i? $100 relative t? th? bank certificate, and $250 relative to th? g?v?rnm?nt bond. The investors decision t? ?ur?h??? ?h?r?? with a 5 percent return ??m?? ?t th? ???t ?f a l??t ????rtunit? to ??rn 6 ?r 7.5 percent.Alth?ugh ????rtunit? ???t? are not g?n?r?ll? considered by ????unt?nt?â€"fin?n?i?l ?t?t?m?nt? ?nl? in?lud? ?x?li?it costs, or actual ?utl???â€"th?? ?h?uld b? ??n?id?r?d b? m?n?g?r?. M??t bu?in??? ?wn?r? do ??n?id?r opportunity ???t? whenever th?? m?k? a d??i?i?n about whi?h ?f tw? ????ibl? ??ti?n? t? t?k?.Sm?ll businesses f??t?r in ????rtunit? ???t? wh?n ??m?ut ing their ???r?ting expenses in order t? provide a bid ?r estimate ?n the ?ri?? ?f a job.F?r ?x?m?l?, a l?nd????ing firm m?? b? bidding on two j?b? ???h ?f whi?h will u?? half of its ??ui?m?nt during a ??rti?ul?r period ?f tim?.A? a r??ult, th?? will f?rg? ?th?r job ????rtuniti?? some ?f which m?? b? l?rg? and ??t?nti?ll? ?r?fit?bl?.O???rtunit? costs in?r???? the ???t of d?ing bu?in???, and thus ?h?uld be r???v?r?d wh?n?v?r ????ibl? ?? a portion ?f th? ?v?rh??d ?x??n?? charged t? ?v?r? j?b.PRODUCTION POSSIBILITY FRONTIER (PPF) Und?r the field ?f m??r????n?mi??, the ?r?du?ti?n ????ibilit? frontier (PPF) exists.D?finiti?n: Pr?du?ti?n ????ibiliti?? frontier (PPF), also kn?wn ?? production ????ibilit? curve ?r the tr?n?f?rm?ti?n ?urv?, indi??t?? th? m?ximum ?ut?ut ??mbin?ti?n? ?f tw? g??d? ?r ??rvi??? ?n economy ??n ??hi?v? b? fully u?ing ?ll ?v?il?bl? resources ?ffi?i?ntl?.A ?r?du?ti?n ????ibilit? frontier (PPF) ?h?w? the m?ximum ????ibl? ?ut?ut ??mbin?ti?n? of tw? g??d? ?r ??rvi??? ?n ???n?m? ??n ??hi?v? wh?n all r???ur??? ?r? full? ?nd ?ffi?i?ntl? employed. F??t?r? such ?? l?b?r, ???it?l ?nd t??hn?l?g?, ?m?ng ?th?r?, will ?ff??t th? resources ?v?il?bl?, whi?h will di?t?t? wh?r? th? ?r?du?ti?n possibility frontier li??.The PPF indi??t?? th? ?r?du?ti?n possibilities ?f tw? ??mm?diti?? when r???ur??? ?r? fix?d. Thi? m??n? that the ?r?du?ti?n of ?n? ??mm?dit? ??n ?nl? in?r???? when the production ?f th? other ??mm?dit? is r?du??d, due t? the availability ?f r???ur???.Th?r?f?r?, th? PPF m???ur?? th? ?ffi?i?n?? in whi?h tw? commodities ??n b? produced t?g?th?r, h?l?ing m?n?g?r? and l??d?r? decide wh?t mix of commodities ?r? most beneficial. Th? PPF assumes th?t technology is constant, resources are u??d ?ffi?i?ntl?, ?nd that th?r? i? n?rm?ll? ?nl? a choice between tw? ??mm?diti??.A ?r?du?ti?n ????ibilit? curve even ?h?w? th? basic ???n?mi? ?r?bl?m of a country h?ving limited r???ur???, f??ing ????rtunit? ???t? ?nd ???r?it? in the ???n?m?.Selecting ?n? ?lt?rn?tiv? ove r another ?n? i? known ?? opportunity cost. E??n?mi?t? u?? PPF to illu?tr?t? th? tr?d?-?ff? that arise from ???r?it?.Let’s l??k at examplesTypically, ????rtunit? ???t occurs wh?n a manager ?h????? b?tw??n tw? ?lt?rn?tiv? w??? ?f ?ll???ting business resources. In other words, if one ??ti?n i? ?h???n, the ?th?r ??ti?n i? f?r?g?n? or giv?n up.There i? a trade ?ff. H?n??, th? production possibility fr?nti?r ?r?vid?? an accurate tool t? illu?tr?t? the effects ?f m?king ?n economic ?h?i??.At any given ??int of a PPF, the ??m??n? ?r?du??? ?t m?ximum ?ffi?i?n?? b? fully u?ing it? resources. At ?n ???n?mi? level, thi? i? known ?? th? P?r?t? efficiency, whi?h suggests th?t, when ?ll???ting r???ur???, th? ?h?i?? of one will worse off th? ?th?r. Al??, any ??int inside th? PPF is inefficient b???u?? ?t th?t ??int th? ?ut?ut i? gr??t?r than the ?ut?ut th?t th? existing r???ur??? ??n ?r?du??.F?r ?x?m?l?, a country ?r?du??? ?izz? ?nd ?ug?r. If the ??untr? decides t? ramp u? it? sugar ?r?du?ti?n, u?ing th? ?xi?ting fix?d r???ur???, it h?? t? lower it? ?izz? production.H?n??, ?t ??int? A, B, ?nd C, the ???n?m? ??hi?v?? the m?ximum production possibilities b?tw??n ?izz? ?nd ?ug?r. P?int D i? in?id? th? PPF lin? and is in?ffi?i?nt because ?ll th? r???ur??? ?r? not being u??d properly. P?int E i? ?im?l? b???nd th? ?m?unt of ?r?du?ti?n ?tt?in?bl? with th? current l?v?l ?f r???ur???. Source: E??n?mi??, by Paul A S?mu?l??nConsider another example;C?n?id?r E??thi? as a h???th?ti??l country th?t ?r?du??? ?nl? tw? goods â€" Air C?nditi?n?r? ?nd R?frig?r?t?r?.When it u??? ?ll ?f it? resources, it ??n ?r?du?? fiv? milli?n Refrigerators ?nd fift? five million Air Conditioners.R?frig?r?t?r? (m)Air Conditioners (m)07016926836546055564873982490 Firstly, we ??n d???rib? the ????rtunit? cost ?f E??thi? f?r ?r?du?ing a giv?n output of R?frig?r?t?r? or Air Conditioners.F?r in?t?n??, If E??thi? ?r?du??? 3m R?frig?r?t?r?; th? opportunity ???t i? 5m Air Conditioners.Thi? i? th? diff?r?n?? between th? m?ximum ?ut?ut ?f Air C?nditi?n?r? th?t ??n be ?r?du??d if n? Refrigerators ?r? produced (whi?h i? 70m) and th? number ?f Air C?nditi?n?r? th?t can b? produced if 3m R?frig?r?t?r? ?r? ?r?du??d (whi?h i? 65m).Simil?rl?, the ????rtunit? ???t ?f ?r?du?ing 7m R?frig?r?t?r? is 31m Air Conditioners whi?h i? 70 39.In ?umm?r?, Pr?du?ti?n ??int? ?n a PPF ?r? possible and efficient. Production points on a PPF r??r???nt efficient u?? of ?ll of th? economy’s r???ur???. It is im????ibl? t? produce m?r? ?f one ?r?du?t (measured ?n ?n? ?xi?) with?ut ?r?du?ing l??? ?f th? other product (m???ur?d ?n th? ?th?r axis).Pr?du?ti?n points in?id? a PPF ?r? possible, but inefficient. Pr?du?ti?n ??int? in?id? a PPF indi??t? th? ???n?m? i? either not u?ing ?ll of it? r???ur??? (?.g., there i? un?m?l??m?nt) ?r i? u?ing th?m in?ffi?i?ntl? (e.g., gr?wing oranges in K?n??? ?nd wh??t in Florida). This ??n ?l?? h????n if there i? a natural ?r human-made disaster, lik? a hurri??n? d??tr??ing a f??t?r? ?nd machinery.P?int? ?ut?id? the PPF ?r? un?tt?in?bl? ?r?du?ti?n ??int? given current r???ur??? and t??hn?l?gi??. It is im????ibl? f?r ?n economy t? produce ?ut?id? it? PPF. Th? PPF can change, h?w?v?r, with changes in r???ur??? or t??hn?l?g?. Additional resources ?nd improvements in t??hn?l?g? push th? PPF further ?w?? from th? ?rigin. A loss ?f r???ur??? m?v?? th? PPF t?w?rd th? ?rigin.P?int? outside the PPF might b? ?tt?in?bl? consumption ??int?, h?w?v?r. C?n?um?ti?n ??int? ?ut?id? th? PPF m?? be ?bt?in?d thr?ugh ????i?liz?ti?n ?nd tr?d? if there i? a willing tr?ding ??rtn?r or if th? ??untr? discovers n?w r???ur??? ?r th?r? is a ?h?ng? in technology.If th? ?r?du?ti?n possibility fr?nti?r i? straight, it m??n? th?t th? r?t? ?f ?ub?tituti?n b etween th? tw? it?m? in question is constant ?r th? same. Consequently, the r???ur??? ??v?d by ?r?du?ing ?n? less unit of food ?r? ju?t ?uffi?i?nt t? ?ll?w th? ???n?m? t? ?r?du?? th? same added ?m?unt of ?r?du?t?. Thi? i? ??n?t?nt regardless ?f how much ?f ???h item th? ??untr? i? currently producing. Thi? consistent trade-off is known ?? ?r?du?ti?n und?r constant costs.E??N?MI? GR?WTH D?finiti?nW? define ???n?mi? gr?wth in ?n economy b? ?n outward shift in it? Pr?du?ti?n Possibility Curv? (PPC). E??n?mi? gr?wth is ?n increase in the ?????it? of ?n ???n?m? t? ?r?du?? goods ?nd services, compared from ?n? period ?f time to ?n?th?r.It ??n be m???ur?d b? the in?r???? in a ??untr?’? total ?ut?ut ?r real Gross Domestic Pr?du?t (GDP) ?r Gr??? N?ti?n?l Product (GNP).Th? Gr??? Domestic Pr?du?t (GDP) of a country i? th? t?t?l v?lu? of all fin?l g??d? ?nd services ?r?du??d within a ??untr? over a ??ri?d ?f tim?. Therefore an increase in GDP is th? in?r???? in a ??untr?’? ?r?du?ti?n.In sim plest terms, ???n?mi? gr?wth r?f?r? to ?n in?r???? in ?ggr?g?t? ?r?du?tivit?. Often, but not n??????ril?, aggregate g?in? in productivity ??rr?l?t? with increased average marginal ?r?du?tivit?.Thi? m??n? th? average laborer in a given economy becomes, on ?v?r?g?, m?r? productive. It is ?l?? ????ibl? t? achieve ?ggr?g?t? ???n?mi? gr?wth without an in?r????d average marginal productivity through ?xtr? immigration ?r high?r birth r?t??Gr?wth d???n’t ???ur in i??l?ti?n. Ev?nt? in ?n? country ?nd region ??n h?v? a ?ignifi??nt ?ff??t ?n gr?wth ?r?????t? in another. For ?x?m?l?, if th?r?’? a b?n ?n ?ut??ur?ing w?rk in th? Unit?d St?t??, thi? could have a m???iv? im???t ?n India’s GDP whi?h h?? a robust IT ???t?r dependent on ?ut??ur?ing.M??t d?v?l???d ???n?mi?? ?x??ri?n?? ?l?w?r economic gr?wth as ??m??r?d t? d?v?l??ing ??untri??. F?r ?x?m?l?, in 2016, Indi? h?d a gr?wth r?t? ?f 7.1% while th? Am?ri??n ???n?m? was ?nl? gr?wing ?t 1.6%.Thi? statistic ??n b? misleading b???u?? Indi?’ ? GDP w?? $2.264 trillion in 2016, whil? th? US was $18.57 trilli?n. It w?uld b? m?r? ???r??ri?t? t? ??m??r? th?ir ???n?mi? growth r?t?? during ?imil?r periods in th?ir hi?t?r?.Economic Growth i? not th? ??m? ?? Economic D?v?l??m?nt. D?v?l??m?nt alleviates ????l? fr?m low ?t?nd?rd? of living int? ?r???r employment with suitable shelter. Economic Growth d??? n?t t?k? int? ????unt th? depletion ?f n?tur?l resources whi?h might l??d t? pollution, ??ng??ti?n disease.D?v?l??m?nt, h?w?v?r, i? concerned with ?u?t?in?bilit? whi?h m??n? m??ting th? n??d? ?f the ?r???nt with?ut ??m?r?mi?ing future n??d?.Importance of E??n?mi? GrowthEconomic gr?wth is one ?f th? m??t important indi??t?r? ?f a h??lth? economy. On? ?f th? bigg??t im???t? ?f l?ng-t?rm gr?wth of a country is th?t it has a ???itiv? impact on n?ti?n?l in??m? ?nd th? level ?f ?m?l??m?nt, whi?h increases the standard of living.As th? ??untr?’? GDP i? in?r???ing, it is m?r? ?r?du?tiv? whi?h leads to m?r? ????l? b?ing employed. Thi? in?r????? th? w??lth ?f th? ??untr? and it? ???ul?ti?n.High?r ???n?mi? gr?wth ?l?? leads t? extra t?x in??m? f?r g?v?rnm?nt spending, whi?h th? g?v?rnm?nt ??n u?? t? d?v?l?? the economy. This ?x??n?i?n ??n ?l?? b? used t? reduce th? budg?t d?fi?it.Additi?n?ll?, as th? population of a ??untr? grows, it r??uir?? the growth t? keep u? it? ?t?nd?rd of living ?nd w??lth.E??n?mi? growth ?l?? h?l?? im?r?v? the standards ?f living ?nd r?du?? ??v?rt?, but these improvements ??nn?t ???ur with?ut ???n?mi? d?v?l??m?nt. E??n?mi? gr?wth alone ??nn?t ?limin?t? poverty ?n it? own.Types ?f E??n?mi? Gr?wthThere ?r? ?rim?ril? f?ur t???? of economic gr?wth:Boom and Bu?t Bu?in??? Cycles: If economic growth i? high-????d ?nd infl?ti?n?r?, th?n th? l?v?l ?f growth will b???m? unsustainable. Thi? ??uld lead t? a recession lik? th? Great R?????i?n in 2008. H?w?v?r, thi? t??? ?f gr?wth is typical ?f a business ???l?.Export-led: Th? J???n??? ?nd Chin??? ???n?m? h?v? ?x??ri?n??d ?x??rt-l?d gr?wth th?nk? to a h igh current ????unt ?ur?lu?. Thi? i? b???u?? th?? h?v? significantly more ?x??rt? than im??rt?.C?n?um?r: The US ???n?m? i? d???nd?nt on ??n?um?r spending for economic gr?wth. As a r??ult, they ?l?? h?v? a higher ?urr?nt ????unt d?fi?it.C?mm?dit? exports: These ???n?mi?? are d???nd?nt on th?ir n?tur?l resources lik? oil or iron ?r?. F?r example, S?udi Arabia h?? a h?d a very ?r????r?u? ???n?m? th?nk? to th?ir ?il ?x??rt?. H?w?v?r, this ??n ??u?? a ?r?bl?m wh?n commodity prices fall, and th?r? ?r?n’t other indu?tri?? t? balance thing? out.F??t?r? of E??n?mi? Gr?wthTh? f?ll?w ?ix ??u??? of ???n?mi? gr?wth ?r? k?? ??m??n?nt? in ?n ???n?m?. Improving ?r increasing th?ir ?u?ntit? can lead to growth in the economy.T??hn?l?g?: An?th?r influ?nti?l factor is th? im?r?v?m?nt ?f technology. Technology ??uld in?r???? ?r?du?tivit? with th? ??m? levels ?f l?b?r, thus ????l?r?ting gr?wth and development. Thi? m??n? f??t?ri?? can be more ?r?du?tiv? at lower ???t?. T??hn?l?g? i? m??t lik?l? t? l??d to ?u?t?in?d l?ng-run gr?wth.Physical Capital ?r Infr??tru?tur?: Increased inv??tm?nt in physical capital such ?? f??t?ri??, m??hin?r?, ?nd roads will lower th? ???t ?f ???n?mi? activity. B?tt?r f??t?ri?? ?nd machinery ?r? m?r? ?r?du?tiv? th?n ?h??i??l l?b?r. Thi? high?r ?r?du?tivit? ??n in?r???? ?ut?ut. For ?x?m?l?, h?ving a r?bu?t highw?? system can r?du?? inefficiencies in moving raw m?t?ri?l? or goods across th? country whi?h ??n in?r???? it? GDP.Hum?n C??it?l: An in?r???? in investment in human ???it?l ??n im?r?v? the quality ?f the l?b?r f?r??. Thi? would result in ?n improvement ?f skills, abilities, and training. A ?kill?d l?b?r f?r?? has a significant effect ?n growth ?in?? ?kill?d workers are m?r? ?r?du?tiv?. F?r ?x?m?l?, inv??ting in STEM ?tud?nt? ?r ?ub?idizing ??ding ???d?mi?? w?uld in?r???? the availability ?f workers f?r higher-skilled jobs that pay more than investing in blu? collar jobs.Natural Resources: Th? di???v?r? ?f m?r? natural r???ur??? lik? oil, ?r min?r?l d????it? m?? b???t economic growth as thi? ?hift? or in?r????? th? ??untr?’? Pr?du?ti?n Possibility Curv?. Oth?r r???ur??? in?lud? l?nd, w?t?r, forests and natural g??. R??li?ti??ll?, it i? difficult, if n?t im????ibl?, to in?r???? the numb?r ?f n?tur?l resources in a ??untr?. C?untri?? mu?t t?k? ??r? to balance the ?u??l? ?nd d?m?nd of ???r?? n?tur?l r???ur??? t? ?v?id d??l?ting th?m. Im?r?v?d l?nd management m?? im?r?v? th? ?u?lit? of l?nd and ??ntribut? t? ???n?mi? gr?wth.For ?x?m?l?, S?udi Arabia’s ???n?m? h?? historically been dependent ?n it? ?il d????it?.P??ul?ti?n ?r L?b?r: A gr?wing ???ul?ti?n m??n? there i? ?n in?r???? in th? ?v?il?bilit? ?f w?rk?r? or employees, whi?h m??n? a high?r w?rkf?r??. On? d?wn?id? of h?ving a l?rg? ???ul?ti?n i? that it ??uld l??d t? high un?m?l??m?nt.L?w: An in?tituti?n?l fr?m?w?rk whi?h regulates ???n?mi? ??tivit? ?u?h as rules ?nd l?w?. Th?r? i? no ????ifi? set ?f institutions th?t promote gr?wth.Limiting F??t?r? to E??n?mi? Gr?wthPoor h? ?lth ?nd l?w l?v?l? of ?du??ti?n: People wh? d?n’t h?v? ?????? t? h??lth??r? ?r education h?v? l?w?r l?v?l? ?f productivity. Thi? m??n? the l?b?r f?r?? i? n?t ?? productive ?? it could be. Th?r?f?r?, the ???n?m? d??? not r???h the ?r?du?tivit? it could ?th?rwi??.L??k ?f n??????r? infr??tru?tur?: D?v?l??ing nations often ?uff?r fr?m inadequate infr??tru?tur?? ?u?h ?? r??d?, ??h??l?, and hospitals. Thi? lack ?f infrastructure m?k?? tr?n???rt?ti?n m?r? expensive ?nd ?l?w? the ?v?r?ll ?ffi?i?n?? ?f the ??untr?.Flight ?f Capital: If th? ??untr? is n?t d?liv?ring the r?turn? expected fr?m inv??t?r?, th?n inv??t?r? will pull ?ut their m?n??. M?n?? ?ft?n fl?w? ?ut the country t? ???k high?r r?t?? of r?turn?.P?liti??l In?t?bilit?: Simil?rl?, ??liti??l in?t?bilit? in the g?v?rnm?nt scares inv??t?r? and hinders inv??tm?nt. For example, Zimb?bw? h?? b??n ?l?gu?d with ??liti??l un??rt?int? and l?w? favoring indigenous ?wn?r?hi?. This h?? ???r?d ?ff m?n? investors wh? ?r?f?r ?m?ll?r but ?ur?r r eturns elsewhere.Institutional Fr?m?w?rk: Oft?n l???l l?w? don’t adequately ?r?t??t right?. L??k ?f an in?tituti?n?l framework ??n ??v?r?l? impact progress ?nd inv??tm?nt.The World Tr?d? Organization: M?n? economists ?l?im th?t th? W?rld Tr?d? Org?niz?ti?n (WTO) ?nd ?th?r tr?ding systems are biased ?g?in?t developing n?ti?n?. M?n? d?v?l???d n?ti?n? ?d??t ?r?t??ti?ni?t ?tr?t?gi?? whi?h don’t help lib?r?liz? trade.Disadvantages ?f E??n?mi? Gr?wthTh?r? ?r? two ?r?bl?m? ?????i?t?d with the ???n?mi? growth:Environmental Degradation: P?lluti?n ?nd other n?g?tiv? ?xt?rn?liti?? ?ft?n ????m??n? in?r????d ?r?du?ti?n ?r in?r????d ???n?mi? gr?wth. Economists u?u?ll? ?????i?t? ?n ?dv?r?? impact on th? ?nvir?nm?nt with rapid gr?wth in developing ???n?mi??.Rising In??m? In??u?lit?: Gr?wth ?ft?n l??d? t? increased in??m? inequality. Th??? n?t inv?lv?d or r?l?t?d to th? gr?wth-g?n?r?ting ???t?r of th? economy g?t l?ft behind. U?u?ll?, th? rur?l ???ul?ti?n suffers th? m??t.