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NET EXPORTS LINE: The graphical depiction of the relation between net exports and national income (or gross domestic product) that plays a role in Keynesian economics and the Keynesian cross. The net exports line is derived by combining the exports line, relating exports and national income, with the imports line, relating imports and national income. Because exports are largely independent of national income and imports (which are subtracted from exports) increase with national income, the net exports line has a negative slope. The slope of the net exports line is thus the negative of the marginal propensity to import. The aggregate expenditures line used in the Keynesian cross is obtained by adding this net exports line, as well as, government purchases and net exports, to the consumption line. The government purchases line is also combined with investment expenditures for the Keynesian saving-investment model.
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                           DERIVATION, PRODUCTION POSSIBILITIES CURVE: A production possibilities curve, which illustrates the alternative combinations of two goods that an economy can produce with given resources and technology, is often derived from a production possibilities schedule. This derivation involves plotting each bundle from the production possibilities schedule as a point in a diagram measuring the two goods on the vertical and horizontal axes. Plotting a production possibilities curve from a production possibilities schedule provides useful insight into graphical analysis commonly used throughout the study of economics.The Plotting Space| Plotting Space |  |
The first step in the derivation of a production possibilities curve is to set up the plotting space. - Each bundle in the production possibilities schedule is a combination of two numbers that can be represented by a point in two-dimensional production possibilities space.
- The two dimensions of the plotting space displayed here are storage sheds on the horizontal axis and crab puffs on the vertical axis.
- The horizontal axis is measured between 0 and 11 storage sheds.
- The vertical axis is measured between 0 and 500 dozen crab puffs.
- The two axes are joined at the origin.
The mouse arrow can be used to display the various components of the production possibilities plotting space.Plotting the PointsThe next step in converting the production possibilities schedule on the left to the graph on the right is to plot points corresponding to each bundle of sheds and crab puffs into the plotting space.
Production Possibilities
Schedule | Production Possibilities
Curve |  |  | |
- Bundle A: The first bundle in the schedule (A) consists of 0 sheds and 450 dozen crab puffs. This point can be plotted by finding 0 sheds on the horizontal axis then moving up until the value of 450 dozen crab puffs is reached on the vertical axis. Click the [Plot A] button to identify this point.
- Bundle B: The second bundle in the schedule (B) is 1 shed and 445 dozen crab puffs. This point can be similarly plotted by finding 1 shed on the horizontal axis then moving up until the value of 445 dozen crab puffs is reached on the vertical axis. Click the [Plot B] button to identify this point.
- The Rest: All remaining points can be plotted in a similar fashion. To illustrate this click the [Plot All] button. The third bundle and corresponding point (C) is 2 sheds and 437 dozen crab puffs. The fourth bundle and point (D) is 3 sheds and 425 dozen crab puffs. The plotting continues until reaching the last bundle and point (K), which is 10 sheds and 0 crab puffs.
- The end result of plotting all 11 points is a semi-circular pattern. The pattern of points has a general downward "slope." This indicates the essential tradeoff between the production of sheds and crab puffs. These points represent the "skeleton" of what is called a production possibilities curve.
Connecting the Points| Connecting the Points |  |
The last step in the derivation of the production possibilities curve is to connect the points with a continuous line. The eleven points are only a few of an unlimited number of production alternatives. The line that connects these 11 points includes the other possibilities, an infinite number of production possibilities. - To connect the points, click the [Draw] button in the exhibit to the right. This draws a straight line between each pair of adjacent points.
- However, the actual curve is not a series of jagged line segments, but a smooth curve. To smooth this curve, click the [Smooth] button.
- The curve is termed the production possibilities curve or the production possibilities frontier.
Recommended Citation:DERIVATION, PRODUCTION POSSIBILITIES CURVE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: October 16, 2024].
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