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Applications of the Production Possibilities Model

24 April, 2015 - 11:52

Learning Objectives

  • Understand the argument for unrestricted international trade in terms of economic specialization and comparative advantage.
  • Define economic growth in terms of the production possibilities model and discuss factors that make such growth possible.
  • Explain the classification of economic systems, the role of government in different economic systems, and the strengths and weaknesses of different systems.

The production possibilities curve gives us a model of an economy. The model provides powerful insights about the real world, insights that help us to answer some important questions: How does trade between two countries affect the quantities of goods available to people? What determines the rate at which production will increase over time? What is the role of economic freedom in the economy? In this section we explore applications of the model to questions of international trade, economic growth, and the choice of an economic system.