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PPF: The abbreviation for production possibilities frontier, which is a curve that illustrates the production possibilities for the economy. A production possibilities frontier represents the boundary or frontier of the economy's production capabilities. That's why it's termed a production possibilities frontier (or PPF). As a frontier, it is the maximum production possible given existing (fixed) resources and technology. Producing on the curve means resources are fully employed, while producing inside the curve means resources are unemployed. The law of increasing opportunity cost is what gives the curve its distinctive convex shape.

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Lesson 16: Aggregate Shocks | Unit 4: Complex Shifts Page: 18 of 21

Topic: SRAS Decrease <=PAGE BACK | PAGE NEXT=>

The case of an decrease in the SRAS curve. Again we start at long-run equilibrium, Po and Qf.
  • With a leftward shift of the SRAS curve, the aggregate market achieves short-run equilibrium at a higher price level and less real production.
  • The labor market imbalance causes wages and production cost to fall. The SRAS shifts rightward, returning to its original position. The price level and real production return to full employment levels.
From long run to long run, nothing changed. But before the long-run adjustment, we have less production at higher prices.

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UNEMPLOYMENT PROBLEMS

The two key problems resulting from unemployment of resources, especially the unemployment of labor, are personal hardships and lost production. The owners of the unemployed resources suffer personal hardships due to the lack of income. The rest of society also suffers from unemployment due to the lack of available production.

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BROWN PRAGMATOX
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Today, you are likely to spend a great deal of time lost in your local discount super center seeking to buy either a handcrafted bird feeder or a New York Yankees baseball cap. Be on the lookout for broken fingernail clippers.
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Paper money used by the Commonwealth of Massachusetts prior to the U.S. Revolutionary War, which was issued against the dictates of Britain, was designed by patriot and silversmith, Paul Revere.
"Now is the only time there is. Make your now wow, your minutes miracles, and your days pay. Your life will have been magnificently lived and invested, and when you die you will have made a difference."

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