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Microeconomics · 01

Production Possibility Curve (PPC)

The Production Possibility Curve (PPC) is an economic model that considers the maximum possible production (output) that a country can generate if it uses all of its factors of production to produce only two goods or services.

Production Possibility Curve
Capital goods Consumer goods PPC KA KB CA CB B A
Curve Controls
0
50
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Opportunity cost
Original PPC
Causes of shift
Outward: an increase in the quality or quantity of resources (factors of production): e.g. better technology or education
Inward: a decrease in the quality or quantity of resources (factors of production): e.g. natural disaster, emgration
Moving along the curve
Represents a change in resource allocation between goods — always involves an opportunity cost.
PPC (current)
Inefficient region
Microeconomics · 02

Supply & Demand

Demand: the quantity of a product that consumers are willing and able to buy at different prices per period of time, ceteris paribus.

Supply: the quantity of a product that producers are willing and able to sell at different prices per period of time, ceteris paribus.

Supply & Demand
Price (P) Quantity (Q) S D S D P Q P Q CS PS ELASTICITY EFFECT ΔP ΔQ
Curve Controls
0
0
Elasticity
−1.0
InelasticElastic
1.0
InelasticElastic
Show / Hide
Consumer surplus
Producer surplus
Eq. price & quantity
Original curves
Show ΔP & ΔQ
Supply (S)
Demand (D)
Consumer surplus
Producer surplus
Microeconomics · 03

Government Intervention

Government intervention: any action carried out by the government that affects the market with the objective of changing the free market equilibrium / outcome.

Indirect Tax
Price (P) Quantity (Q) S₁ D ELASTICITY EFFECT ΔP ΔQ S₂ Tax/unit Pc Pp Q₂ P* Q* CS PS Gov. Revenue DWL
Tax Controls
60
Elasticity
−1.0
InelasticElastic
1.0
InelasticElastic
Show / Hide
Consumer surplus
Producer surplus
Government revenue
Deadweight loss
Tax wedge
Show ΔP & ΔQ
S₂ (after tax)
Gov. revenue
Deadweight loss
Subsidy
Price (P) Quantity (Q) S₁ D ELASTICITY EFFECT ΔP ΔQ S₂ Subsidy/unit Pc Pp Q₂ P* Q* CS PS Gov. Cost
Subsidy Controls
60
Elasticity
−1.0
InelasticElastic
1.0
InelasticElastic
Show / Hide
Consumer surplus
Producer surplus
Government cost
Subsidy wedge
Show ΔP & ΔQ
Maximum & Minimum Price
Price (P) Quantity (Q) S D Pmax Qs Qd SHORTAGE Q* P*
Price Control
130
↓ MAXIMUM PRICE (ceiling)
Elasticity
−1.0
InelasticElastic
1.0
InelasticElastic
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Shortage / Surplus
Quantity labels
Max price (below P*) → shortage
Min price (above P*) → surplus
Quota
Price (P) Quantity (Q) S D Quota Pd Ps Qq P* Q* CS PS DWL
Quota Controls
160
Elasticity
−1.0
InelasticElastic
1.0
InelasticElastic
Show / Hide
Consumer surplus
Producer surplus
Deadweight loss
Macroeconomics · 01

Aggregate Demand & Aggregate Supply

Aggregate Demand (AD): the total demand for an economy's goods and services at a given price level in a given time period.

Aggregate Supply (AS): the total output (real GDP) that producers in an economy are willing and able to supply at a given price level in a given time period.


Monetarist (New Classical) View
Price Level (P) Real GDP (Y) OUTPUT GAP LRAS Y* LRAS SRAS SRAS AD AD P Y
Curve Controls
0
0
0
Show / Hide
Eq. P & Y
Output gap
Original curves
Monetarist view
The LRAS curve is vertical. The economy will move towards full employment without government intervention.
AD
SRAS
LRAS (Yp)
Output gap
Keynesian View
Keynesian View
Price Level (P) Real GDP (Y) AS Y* AD AD P Y
Curve Controls
0
0
Show / Hide
Eq. P & Y
Original curves
Keynesian AS phases
1. Perfectly elastic (horizontal)
2. Intermediate (upward-sloping)
3. Perfectly inelastic (vertical)
Keynesian view
In the long run, an economy can operate at any level of output and not necessary at full capacity.
AD
Keynesian AS
Yfe (full employment)
International · 01

Floating Exchange Rate

Exchange rate: the price of one currency expressed in terms of another currency. Under a floating exchange rate system, the exchange rate is determined freely by the forces of demand and supply in the foreign exchange (forex) market, with no government intervention.

Floating Exchange Rate
Price of domestic currency in US$ Quantity of domestic currency D S D S ER Q ER Q
Currency
Curve Controls
0
0
Show / Hide
Eq. exchange rate & Q
Original curves
Appreciation / Depreciation
Demand for domestic currency
Arises from exports, foreign investment inflows, and speculation that the currency will rise.
Supply of domestic currency
Arises from imports, capital outflows, and speculation that the currency will fall.
Demand for domestic currency (D)
Supply of domestic currency (S)
International · 02

Protectionism

Protectionism: government policies and actions taken to restrict or limit international trade in order to protect domestic industries from foreign competition.

Tariff
Price (P) Quantity (Q) S D Sw Sw+tariff Px Pw+t Pw Pz tariff CS PS SS Domesticrevenue Importerrevenue Consumerexpenditure Tariffrevenue DWL DWL A e A₁ e₁ B F Q Q₃ Q₂ Q₁ M = quantity of imports
Tariff Controls
45
Free tradeHigh tariff
Move the slider to compare the original free-trade position (tariff = 0) with the tariff outcome.
Show / Hide
Points of intersection
Consumer surplus
Producer surplus
Social surplus (SS)
Domestic producer revenue
Importer revenue
Consumer expenditure
Tariff revenue
Deadweight loss (DWL)
Quantity of imports
Domestic supply (S)
Domestic demand (D)
World supply Sw, price Pw
Sw + tariff, price Pw+t
Quota
Price (P) Quantity (Q) Sd Dd Sd+quota quota Sw Px Pq Pw Pz CS PS SS Domesticrevenue Importerrevenue Quotarent Consumerexpenditure A e A₁ e₁ X Y Q₁ Q₂ Q₃ Q₄ quota imports (Q₃ − Q₂)
Quota Controls
74
Free tradeTight quota
Tightening the quota (drag right) restricts imports, shifting the effective supply to Sd+quota and raising the price from Pw to Pq. The value shows the allowed import units.
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Points of intersection
Quota wedge
Consumer surplus
Producer surplus
Social surplus (SS)
Domestic producer revenue
Importer revenue
Quota rent
Consumer expenditure
Quantity of imports
Domestic supply (Sd)
Domestic demand (Dd)
World supply Sw, price Pw
Sd + quota, price Pq
Domestic subsidy
Price (P) Quantity (Q) Sd Dd Sd+sub subsidy Sw Px P1 Pw Pz CS PS SS Domesticrevenue Foreignrevenue Subsidycost WL Consumerexpenditure A B e Q Q₂ Q₁ imports (Q₁ − Q₂)
Subsidy Controls
45
Free tradeLarge subsidy
A production subsidy lets domestic firms produce as if the price were P1 = Pw+subsidy, shifting supply to Sd+sub. Consumers still pay Pw, so consumption stays at Q₁ while domestic output rises Q → Q₂ and imports shrink.
Show / Hide
Points of intersection
Subsidy wedge
Consumer surplus
Producer surplus
Social surplus (SS)
Domestic producer revenue
Foreign producer revenue
Consumer expenditure
Subsidy cost (government)
Deadweight loss (DWL)
Quantity of imports
Domestic supply (Sd)
Domestic demand (Dd)
World supply Sw, price Pw
Sd + subsidy (producer price P1)