The aggregate demand/ aggregate supply models

MOVEMENTS OF PPG (POSSIBLE POSSIBILTY GRAPH)

Now that we know some basic terminology as well as basic ideas of economics, we will now transition to basic graph of economics and later on follow up with some examples. 

"Full Employment"- not 100% employment not 100% productive. 4-5% unemployment. 80-90% factory capacity. 

Movements of the PPG

1) Inside of the curve

Underemployment- have the people and no resources and vice versa, unemployment, and recession (war, famine, natural disasters etc.) 

2) Along the curve

Shift along the curve. Equal production or making more than another product. Can always shift to underemployment to the line and vice versa. 

3) shifts (outside) of the curve

Opportunity cost- next best alternative that you must give up in order to get something else. 

Law of the increasing opportunity cost- as you produce more of one good the opportunity cost (far-gone production of another good) will increase.

Concave vs Constant PPG- Concave bow out and Constant is a straight line. 

Productive efficiency vs allocative efficiency- 

Productive efficiency means products are being produced in the cheapest way possible. (Any point on the PPC.)

Allocative efficiency- the products being produced are the ones that most desired by society. (Any point on the PPG)

BASIC CURVES OF PPG AND THEIR SCENARIOS

Here is the basic Product Possibility Graph and the different scenarios that go with it.

Under the curve- this means that production is inefficient due to things such as unemployment. However, resources can still be produced while in this area of the curve. It just isn't a practical situation. 

On the curve- Something that is on the curve is overall efficient. This also may tell us how much of one product is preferred over another product based on what we have. For example, on point A it tells us that we produce the maximum number of bikes with no computers in the process. Point C gives us a scenario where we make equal amounts of each product which is still efficient. 

Over the curve- this is the area that means unattainable. This could be due to several reasons, one major one being the lack of any updated technology. 

Change in curve- Yes, the points on the graph can change. They can shift from under the curve to on the curve or from over the curve to on the curve. It could also go from efficient to inefficient. It all depends on the situation. 

Things to note when labeling- The x and y axis must always be labeled either by what is given or by user preference. For those who are in macroeconomics this will be the main curve we will be studying. So anything that is inverse to the graph given below or bends inward won't be something we will be going over. Maybe for fun bits or if you are in that sort of stuff. Hey, I won't judge.