Goods Market and Factors Market

Goods/product/commodity markets:

Markets used to exchange final good or service. Product markets exchange consumer goods purchased by the household sector, capital investment goods purchased by the business sector, and goods purchased by government and foreign sectors. A product market, however, does NOT include the exchange of raw materials, scarce resources, factors of production, or any type of intermediate goods. The total value of goods exchanged in product markets each year is measured by gross domestic product. The demand side of product markets includes consumption expenditures, investment expenditures, government purchases, and net exports. The supply side of product markets is production of the business sector. Read More →

Production possibility frontier (PPF) is the curve which joins all the points showing the maximum amount of goods and services which the country can produce in a given time with limited resources, given a specific state of technology. 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. Table: Choice & Opportunity cost revisited: The law of increasing opportunity cost. Read More →

How Producers Decide About Optimal Choice

Assume that a firm which is thinking to open a new production line of car manufacturing. Rational decision involves the cost and benefit of that car’s production. Costs will be additional labor employed, additional raw material and additional parts & components that have to be bought. Benefits will be additional revenue that the firm will get by selling the additional number of cars. It will be profitable to invest if revenue is greater than the cost. Read More →