Lecture Notes: Non-Linear PPFs

Introduction

• Discussion focuses on non-linear Production Possibility Frontiers (PPFs) in Chapter 2.
• Non-linear PPFs have varying slopes, unlike linear PPFs, which have constant opportunity costs.

Linear vs Non-Linear PPFs

• Linear PPFs: Opportunity cost and slope remain constant regardless of production levels.
• Non-Linear PPFs: Opportunity cost and slope change with production levels.
  • More realistic as it considers differing suitability of resources for production of different goods.

Example of Non-Linear PPF

• Consider a group deciding on production between two goods with certain resources.
• Resources may vary in their productivity for different goods, e.g., land suitability for growing corn.

Graphical Representation of Non-Linear PPF

• PPF is a bowed-out curve rather than a straight line.
• Axes:
  • Y-axis: Maximum production of Y (e.g., haircuts).
  • X-axis: Maximum production of X (e.g., corn).
• Slope changes:
  • Flat slope when producing a lot of Y and little X.
  • Steep slope when producing a lot of X and little Y.

Opportunity Cost in Non-Linear PPFs

• Case 1: Producing more X (from a high-Y, low-X point)
  • Opportunity cost (in terms of Y given up) is low due to flat slope.
• Case 2: Producing more X (from a low-Y, high-X point)
  • Opportunity cost is high due to steep slope.

Resource Allocation

• Resources specialized in Y might not be efficient for X and vice versa.
• As production of one good increases, opportunity cost increases as well.

Example: Corn and Haircuts

• Point A: 1,000 pounds of corn, 0 haircuts.
• Point F: 0 pounds of corn, 675 haircuts.
• Transitioning between points shows changing opportunity costs.
  • E.g., Decrease corn from 1,000 to 800 pounds → Gain 300 haircuts.
  • Decrease corn from 200 to 0 pounds → Gain 25 haircuts.

Opportunity Cost Calculation

• Point B: Increase corn by 200 pounds requires giving up 300 haircuts.
• Point E: Increase corn by 200 pounds requires giving up 50 haircuts.
• This reflects different slopes and opportunity costs at different production levels.

Conclusion

• Non-linear PPFs illustrate that opportunity costs depend on production levels.
• Important for understanding resource allocation and production efficiency.
• This concludes Chapter 2; next week will cover chapters 3 and 4.