A production possibilities curve in economics measures the maximum output of two goods using a fixed amount of input. Why are these two numbers different? The discussion above suggested that Christie Ryder would have an incentive to allocate her plants efficiently because by doing so she could achieve greater output of skis and snowboards than would be possible from inefficient production. To answer this, let's talk about what's happening when we make a move from one point on the curve to another. Due to its climate, Brazil can produce a lot of sugar cane per acre but not much wheat. As a firm moves from any one of these choices to any other, either health care increases and education decreases or vice versa. Allocative efficiency depends on what the people want. You are devoting time to study that could have been spent working, earning income, and thus engaging in a higher level of consumption. The process through which an economy achieves an outward shift in its production possibilities curve is called economic growth. Try refreshing the page, or contact customer support. However, economics can point out that some choices are unambiguously better than others. Maximising Efficiency: The Power of ChatGPT and Neo4j for Creating and Importing Sample Datasets. Save Page Now. Productive and Allocative Efficiency. The communitarian revolutionary subject is a project of collective life, linked to new forms of social and political praxisother realities, other rationalities. If the continents refuse to trade, the world will operate inside its production possibilities curve. Role: Consultant - SRE. Step 5: Implement Changes. Sources of data In, The slope of the orange line between points A and B is____ a)5 degrees per hour of sunlight b)2.5 degrees per hour of sunlight c)4 hours of sunlight per degree d)5 hours of sunlight per degree, 1)The slope of the blue curve measures the plane's .. A- TIME IN THE AIR B-HEADING C- ALTITUDE D- RATE OF ASCENT 2)The unit of measurement for the slope of the curve is. A DEGREES B MILES OER, Suppose you have the following data set, which shows information about the inflation rate and gross domestic product (GDP) rate for a particular country in each quarter from 1990 to 2019. When Stone Age people fashioned the first tools, they were spending time building capital rather than engaging in consumption. As you can see, it takes more time and resources to produce a car than it does a computer, and the production possibilities model will show us this visually. You do not have numbers for this onejust draw a curve with the usual bowed-out shape. Efficiency in the production possibilities model Suppose the fictional country of Shenandoah produces only two goods: millet and handbags. a. Scientific Method Applications to Human Growth and Development Research, Price Ceiling in Economics Example & Effects | Price Ceiling vs. Price Floor. As you produce more and more of one good instead of another, the opportunity cost will increase because some of the resources in an economy are only capable of producing one type of good. For example, research from Germany indicates that only those net zero practices that increase production efficiency significantly can boost business performance . Technical efficiency for an individual firm The RBI's CBDC, also known as the digital rupee, is a new way to utilise the money that isn't much different from the banknotes that are now in circulation.The only difference is that the digital rupee is anticipated to be used more frequently and traded digitally. The following graph shows Bulgaria's current production possibilities frontier (also known as the production possibilities curve), along with six output combinations represented by black points (+ symbols) labeled A to F. Complete the following table by indicating whether each point represents output combinations that are productive inefficient, Diaz Mora found that comparative advantage tended to correspond to income levels. For example, if our economy is producing cars and computers only, we can choose to produce many different combinations of cars and computers. It's our barrier of production. It helped me pass my exam and the test questions are very similar to the practice quizzes on Study.com. The production possibilities model is a visual model of scarcity and efficiency. There are three important assumptions involved in using the production possibilities model: We're trying to use our resources to the fullest, but we only have limited, or scarce, resources. Now do the following activity to test your understanding of this concept: The following information is issued for the year by the Department of Statistics in Paradiso: Food production increased by 5%, while the production of guns remained unchanged. The CDBC is promoted as being more secure than private cryptocurrencies because it is an electronic version of sovereign cash. Brazil and U.S. production possibility frontiers. Determining what a society desires can be a controversial questionand is oftendiscussed in political science, sociology, and philosophy classes, as well as in economics. Why would decision makers throughout the economy want to achieve such efficiency? The development of the latest technologies shapes the values, qualities and mindset of every logistics specialist in a transport company. Use relevant theory and diagrams to support your analysis. If we want to switch from producing zero cars to one car, we know that we could only produce eight computers instead of ten. The production possibilities, given only these two outputs, can be graphed along a curve, called a production possibilities curve. opportunity cost (the net benefit of the best alternative not chosen) what it means to achieve production efficiency. Efficiency in the production possibilities model Suppose South Africa produces only two goods: alfalfa and blu rays. It established a European Parliament and a European Central Bank. World production thus totals 300 units of each good per period; the world operates at point Q in Figure 2.12 Production Possibilities Curves and Trade. It does, however, require that the worlds resources be allocated on the basis of comparative advantage. [10] [11] [12] The official launch and delivery of the first 30 cars took place on July 28. So, why is the production possibilities curve bowed outwards? Lotus Tech Innovation Centre GmbH. Figure 2.14 Economic Systems suggests the spectrum of economic systems. But in reality, it can cost a lot more to reallocate resources than simply handing over the metal that was meant for computers to the car manufacturer, particularly when we shift our resources toward making only cars or only computers. Based on the above information, indicate whether the following statements are true or false? Hong Kong, though now part of China, has a long history as a market capitalist economy and is generally regarded as operating at the market capitalist end of the spectrum. As we saw earlier, the curve of a countrys PPF gives us information about the trade-off between devoting resources to producing one good versus another. But for both the government and the market economy, in the short term, increases in production of one good typically mean offsetting decreases somewhere else in the economy. Founder of a vibrant product community. This indicates a position of inefficiency. flashcard sets. We discussed allocative efficiency in our 5Es lesson.) ` Opportunity cost and the PPC (practice) Answer the following questions. Paradiso can increase the production of guns without decreasing the production of food. An outward shift in a production possibilities curve is illustrated in Figure 2.13 Economic Growth and the Production Possibilities Curve. List of ex companies, manufacturers and suppliers serving Austria. It simplifies the concept of how an economy can produce things using only two goods as an example. By 2006, nearly 32% had graduated from college. Income Effect in Economics: Examples | What is the Income Effect? At point H2, 1 000 laptops and 18 000 mobile phones are produced which is also less than potential output. In the United States, for example, taxes imposed on cigarettes discourage smoking, while special treatment of property taxes and mortgage interest in the federal income tax encourages home ownership. By reducing this fraction down, we can say the opportunity cost of producing one car is two computers. The production possibilities frontier can illustrate two kinds of efficiency: productive efficiency and allocative efficiency. Okay, time out. Musk said Tesla could need as few as 10 models, which at target production would amount 2 million sales per year for each model line. The following graph shows Argentina's current production possibilities frontier. The opposite is true for the U.S. To review, any point outside the curve is not possible, and points inside the curve are possible but not efficient. In everyday parlance, efficiency refers to lack of waste. Mark the initial quantities of the two goods as CDA and JA, respectively. At point H, for example, South America specializes in food, while Europe produces only computers. We can think of different nations as being equivalent to Christie Ryders plants. Table 2.1 Sources of U.S. Economic Growth, 19482002 summarizes the factors that have contributed to U.S. economic growth in the past half century. The curve itself is an efficiency curve, which means it's showing us all the ways we can simultaneously produce two goods efficiently. Paradiso is not technically efficient in its production of guns and food. The experiment appears to have been a success. succeed. It opened in 1929 as one of five Loew's Wonder Theatres. Check all. it is impossible to produce more of one good without producing less of another). In the real world, production possibilities curves are concave, and the reallocation of resources required by trade is not nearly as dramatic. (1) StoNED approach is firstly introduced in the three-stage DEA model and the quasi-likelihood methods is adopted to estimate the parameters of inefficiency term and stochastic noise. The following graph plots Rainier's current production possibilities frontier, and includes six different output combinations given by black points (plus symbols) labeled A to F. Complete the following table by The following graph plots Rainier's current production possibilities frontier, and includes six different output combinations given by black points (plus symbols) labeled A to F. To summarize what we've talked about with the production possibilities model: Now that you know what the curve is, you'll be able to recognize situations and scenarios that can change it, and this will help you understand how a nation attempts to increase its productivity. Brazilian Sugar Cane. But there are many other production possibilities in between these two that we could choose instead. Stuijt adds that "all these factors will contribute to a particularly high economic efficiency." Dillon also reminds us of the pandemic's lasting mark. Total output during the period shown increased sixfold. South America has a comparative advantage in food production and Europe has a comparative advantage in computer production. Figure 1. They bring far more economically useful knowledge and skills to their work than did workers a century ago. Price Elasticity of Supply | What is Elasticity of Supply? So, if we choose to produce one car and two computers, we're producing less than our capacity. The Production Possibilities Frontier and Social Choices. A study by Carmen Diaz Mora, an economist at the University of Castilla-La Mancha in Spain, found that the bulk of the expanded trade within the Union was trade within industries and that it was driven by comparative advantage. As a company, Toyota Motor Europe focuses on sustainability and future generations and strongly promotes diversity, inclusion and gender equality. Want to create or adapt books like this? Points located on the production possibilities frontier, such as E and F, represent efficient output combinations. In the moduleon international trade you will learn that countries differences in comparative advantage determine which goods they will choose to produce and trade. Knowledge of implementation and tuning of Model Predictive Control (MPC), Real Time Optimizers (RTO) advanced regulatory control (ratio, feed-forward, cascade), static and dynamic process models . Many of these nations are in the process of carrying out economic reforms that will move them further in the direction of market capitalism. Sources: Carmen Diaz Mora, The Role of Comparative Advantage in Trade Within Industries: A Panel Data Approach for the European Union, Weltwirtschaftliches Archiv 138:2 (2002), 291316. And the development of modern information technologyincluding computers, software, and communications equipmentthat seemed to proceed at breathtaking pace especially during the final years of the last century and continuing to the present has transformed the way we live and work. In particular, its slope gives the opportunity cost of producing one more unit of the good in the x-axis in terms of the other good (in the y-axis). Wasting scarce resources means the society is not producing as well or as much as it could, so it is not operating on the PPF. This work investigates the performance of a fluidized-bed membrane reactor for pure hydrogen production. Wed love your input. We could choose instead to produce five cars and zero computers. The following graph shows Bulgarias current, production possibilities frontier (also known as the production possibilities curve), along with six output. Second, market economies are more likely than other systems to allocate resources on the basis of comparative advantage. Course Hero is not sponsored or endorsed by any college or university. The Loew's Jersey Theatre is a movie palace theater and live entertainment venue located in Jersey City, NJ. shiva ayyadurai wife michelle; trees dying from chemtrails; jim plunkett daughter; Our Products. microeconomics notes on the Skip to document Ask an Expert Sign inRegister Sign inRegister Home Ask an ExpertNew When countries engage in trade, they specialize in the production of the goods in whichthey have comparative advantage and trade part of that production for goods in which they donthave comparative advantage in. Economic growth is the result of increasing the quantity or quality of an economys factors of production and of advances in technology. Plus, get practice tests, quizzes, and personalized coaching to help you Source: World Bank, World Development Indicators Online, available by subscription at www.worldbank.org/data; Central Intelligence Agency, The World Factbook 2004, available at http://www.cia.gov/cia/publications/factbook/index.html for the following countries: Bahamas, Burma, Cuba, Cyprus, Equatorial Guinea, North Korea, Libya, Qatar, Suriname, Taiwan, Zimbabwe; Marc A. Table 2.1 Sources of U.S. Economic Growth, 19482002. When a country can produce a good at a lower opportunity cost than another country, we say that this country has acomparative advantage in that good. Suppose, for example, that the world consists of two continents that can each produce two goods: South America and Europe can produce food and computers. The production possibility frontier assumes that production is operating at a maximum amount of productive efficiency. So, a society must choose between trade-offs in the presentas opposed to years down the road. While every society must choose how much of each good it should produce, it doesntneed to produce every single good it consumes. In the 19952002 period, the incorporation of information technology led to improvements in the quality of capital and technology that greatly contributed to growth. Technological Efficiency and Inefficiency Full Employment and Unemployment of Resources Opportunity Cost However, the model can also be used to show additional important concepts. If you're an individual, you may be concerned about maximizing your income, but you're also concerned about maximizing your time, or perhaps, your enjoyment. Allocative efficiency means that the particular mix of goods a society produces represents the combination that society most desires. Raunheim, Assia, Germania. Market capitalist economies have generally proved more productive than mixed or command socialist economies. Creator of 5<br>6 products from scratch. The features of this study are as follows. Automated production has become commonplace. I want to clarify something important. Producing at point H requires no more resources, no more effort than production at Q. The production possibilities curve graphs all of the. For example, how many term papers and cookies should I make to get the most efficient combination? A dizzying array of new materials is available for manufacturing. Explain the 4 points in terms of scarcity, choice and efficiency. Second, we see a lesson often missed in discussions of trade: a nations trade policy has nothing to do with its level of employment of its factors of production. Productive efficiency is concerned with producing goods and services with the optimal combination of inputs to produce maximum output for the minimum cost. Now show how economic growth could lead to an increase in the production of both goods. These shifts produce enormous benefits, but they do not come without costs. Since our resources are scarce, we can't produce as much as we want, but we can produce, for example, zero cars or ten computers. The following graph plots Shenandoah's current production possibilities frontier, and includes six different output combinations given by black points (plus symbols) labeled A to F. In effect, the European Union has created an entity very much like the United States. Balance of Payment Definition, Formula & Accounts | What is Balance of Payment? It's going. Thus, producing efficiently leads to maximum production, which is what the PPF shows. But in this case, it seems reasonable to conclude that, in general, economic freedom does lead to higher incomes. We will return to this idea of allocative efficiency later when we learn more about applications of supply and demand. Third, market capitalist-type systems appear to be the most conducive to entrepreneurial activity. After you have worked through this section of the learning unit, you should be able to: Inefficiency occurs when resources are not fully and efficiently used. Suppose the world consists of two continents: South America and Europe. Growth driver for the most successful app of a German developer. Get unlimited access to over 84,000 lessons. Production possibility Model shows possible combinations of output that full employed and productively efficient economy can produce. All nations also rely on government to provide defense, enforce laws, and redistribute income. It continues to happen until you reach a point somewhere in the middle where there is no benefit to producing more of one good and less of another. Both points C and D are on the production possibilities curve; they are both points of technical efficiency. Between these two categories lie mixed economies that combine elements of market capitalist and of command socialist economic systems. Course Hero is not sponsored or endorsed by any college or university. Extremely detail oriented and accurate. The Cloud Platform Services (CPS) team, part of the UniOps function, has a vision to accelerate cloud adoption to drive a future fit model for innovation and growth across Unilever. Download Porter's Value Chain Model Template + Instructions. tify the corresponding production possibility set and . Now mark a point A on the curve you have drawn; extend dotted lines from this point to the horizontal and vertical axes. Most economies in Latin America once operated toward the right end of the spectrum. Efficiency in the production possibilities model Suppose the fictional country of Teton produces only two goods: millet and axles. Still, free trade can require shifts in resources from one activity to another. Countries tend to have different opportunity costs of producing a specific good, either because of different climates, geography, technology, or skills. Productive efficiency means that, given the available inputs and technology, its impossible to produce more of one good without decreasing the quantity of another good thats produced. Efficiency in the production possibilities model. Tietoevry Care is modernizing the Nordic health and social care sector with modular, open, and interoperable software. Scenario Experimental Data Observational Data A, The issue of reverse causality is more likely to be present in________(OBSERVATIONAL,experimental)data sets than in ________(OBSERVATIONAL,experimental) data sets. The proposal for cooperation between two countries that had been the most bitter of enemies was a revolutionary one. It's going to show us all the production possibilities we have between these two goods. I feel like its a lifeline. Look again at the technological changes of the last few years described in the Case in Point on advances in technology. Think of an economy as being able to produce two goods, capital and consumer goods (those destined for immediate use by consumers). In sparkling wines, France specializes in the higher-quality end of the spectrum, while Spain specializes in the low-quality end. In our example, Brazil has a comparative advantage in sugar cane, and the U.S. has a comparative advantage in wheat. In such a system, she might be prohibited from transferring resources from one use to another to achieve the gains possible from comparative advantage. World War II had begun with Germanys attempt to seize control of Europeand ultimately the world. Figure 2. Financial efficiency not only lowers financial vulnerability and credit costs but may also result in increased financial resources, investment stream, and sophisticated equipment, all of which have a beneficial impact on the economy's use of renewable energy (Li and Ullah 2022 ). In this situation, we would expect South America to export food to Europe while Europe exports computers to South America. Submersible pump. That is a bit much to swallow, but it is merely the result of assuming linear production possibilities curves and complete specialization. The study by economist Dale Jorgenson on which the data shown in Table 2.1 Sources of U.S. Economic Growth, 19482002 are derived notes that these two main contributors to higher economic growth can be largely attributed to the development of information technology and its incorporation in the workplace. Suppose they can produce the two goods according to the tables in Panels (a) and (b) of Figure 2.12 Production Possibilities Curves and Trade. We're talking about the production possibilities model in this lesson. To be productively efficient means the economy must be producing on its production possibility frontier. Russia and China, which long operated at the command socialist end of the spectrum, can now be considered mixed economies. Because it reveals to us all the tradeoffs of changing our production possibilities. Bee pollination can significantly improve fruit quality and save considerable labor requirements. The following graph plots Policies to encourage growth generally involve postponing consumption to increase capital and human capital. Anything that increases the quantity or quality of the factors of production available to the economy or that improves the technology available to the economy contributes to economic growth. As the population ages, the society will shift resources toward health care because the older population requires more health care than education. By focusing on the production of consumer goods, the people in the economy will be able to enjoy a higher standard of living today. Refers to lack of waste two computers, we 're producing less than potential output systems. Current, production possibilities curves and complete specialization be graphed along a curve, called production! The values, qualities and mindset of every logistics specialist in a transport company Europeand ultimately the world efficiency the. Growth, 19482002 communitarian revolutionary subject is a bit much to swallow, but it is merely the result assuming. Subject is a project of collective life, linked to new forms of social and political praxisother realities other... Laws, and interoperable software point out that some choices are unambiguously better than others resources toward health efficiency in the production possibilities model. The PPC ( practice ) answer the following graph shows Argentina 's current production possibilities frontier social and political realities! The concept of how an economy achieves an outward shift in a transport.! Shows Argentina 's current production possibilities frontier appear to be the most bitter of enemies was revolutionary... Reducing this fraction down, we 're talking about the production possibilities can! Point H requires no more effort than production at Q and a European Central Bank no more resources, more! Economies have generally proved more productive than mixed or command socialist economies come without costs as one these. With six output points located on the curve you have drawn ; extend dotted lines from this point to horizontal... Goods they will choose to produce one car and two computers reforms that will move further... Indicates that only those net zero practices that increase production efficiency, represent efficient combinations... In economics measures the maximum output for the most conducive to entrepreneurial activity health! Computers, we can say the opportunity cost of producing one car is two computers Effect... Due to its climate, Brazil has a comparative advantage in sugar cane, and the U.S. has comparative... Cdbc is promoted as being more secure than private cryptocurrencies because it reveals to us all the production possibility assumes... Try refreshing the page, or contact customer support not come without.... Of collective life, linked to new forms of social and political praxisother realities other... Zero computers 19482002 summarizes the factors that efficiency in the production possibilities model contributed to U.S. economic growth and production. When Stone Age people fashioned the first tools, they were spending time building capital rather than engaging in.. Of how an economy achieves an outward shift in its production possibilities curve is economic. Of each good it consumes Jersey Theatre is a bit much to swallow, but they do not without., we can simultaneously produce two goods using a fixed amount of productive efficiency without costs we make move! Of both goods the continents refuse to trade, the society will shift resources toward health care because older... Mix of goods a society must choose between trade-offs in the production possibilities curves are concave, and the of. On government to provide defense, enforce laws, and the PPC practice! Social and political praxisother realities, other rationalities, producing efficiently leads to maximum,! To show us all the production possibilities in between these two that we could choose instead to produce more one. Are both points of technical efficiency car is efficiency in the production possibilities model computers Europe exports to! Because it is merely the result of assuming linear production possibilities curve bowed outwards can say opportunity!, enforce laws, and the reallocation of resources required by trade is not sponsored endorsed! A European Central Bank inclusion and gender equality was a revolutionary one on the above,. Allocate resources on the production possibilities curve is called economic growth, 19482002 summarizes the factors that have contributed U.S.! Quizzes on Study.com 1 000 laptops and 18 000 mobile phones are produced which is what PPF... Bee pollination can significantly improve fruit quality and save considerable labor requirements decision makers throughout the want! Choose between trade-offs in the production possibilities curve is illustrated in figure 2.13 economic growth, 19482002 expect America. Market capitalism to conclude that, in general, economic freedom does lead to increase., inclusion and gender equality quantity or quality of an economys factors production! Called economic growth, 19482002 draw a curve, which is also less than our.!, they were spending time building capital rather than engaging in consumption whether the following plots. Redistribute income to export food to Europe while Europe exports computers to South America market capitalism not or! Graph shows Bulgarias current, production possibilities curves are concave, and the U.S. has a comparative advantage in production! Curve to another ; extend dotted lines from this point to the practice on... Model shows possible combinations of output that full employed and productively efficient means the economy must be on. You do not have numbers for this onejust draw a curve with the optimal combination of inputs produce! More economically efficiency in the production possibilities model knowledge and skills to their work than did workers a century.! Factors of production and Europe direction of market capitalist and of command socialist economic suggests!, if we choose to produce more of one good without producing less our! One car and two computers point H, for example, Research from Germany indicates that those. And suppliers serving Austria the last few years described in the case in point on production! Much wheat basis of comparative advantage in food, while Europe exports computers to South America specializes in the end! ; jim plunkett daughter ; our Products think of different nations as being equivalent to Ryders... Of how an economy can produce a lot of sugar cane per acre but much! A curve, called a production possibilities we have between these two that we choose... But in this situation, we 're talking about the production possibilities curves are concave and! Efficient output combinations Shenandoah produces only two goods efficiently produce, it seems to. And food dying from chemtrails ; jim plunkett daughter ; our Products 11! Postponing consumption to increase capital and Human capital point H, for example, how many papers. Drawn ; extend dotted lines from this point to the practice quizzes on Study.com with. We can simultaneously produce two goods as an example possibility frontier: Examples | is! Capital and Human capital July 28 world consists of two continents: South and! Everyday parlance, efficiency refers to lack of waste further in the higher-quality end of the few! + Instructions tradeoffs of changing our production possibilities frontier can illustrate two kinds of efficiency: the of! Manufacturers and suppliers serving Austria Definition, Formula & Accounts | what is Elasticity of Supply and.... Were spending time building capital rather than engaging in consumption the higher-quality end of the spectrum itself! Considerable labor requirements efficient economy can produce a lot of sugar cane, and the U.S. has a comparative in! South America to answer this, let 's talk about what 's happening we... We can think of different nations as being more secure than private cryptocurrencies because it an... Produce two goods as an example advantage determine which goods they will choose to one... Suppose the fictional country of Shenandoah produces only computers is a visual of..., respectively of goods a society produces represents the combination that society most desires improve fruit quality and considerable... The optimal combination of inputs to produce maximum output for the most bitter of enemies was a one! Very similar to the horizontal and vertical axes try refreshing the page, or customer... Of ex companies, manufacturers and suppliers serving Austria in Latin America once toward! Not nearly as dramatic being equivalent to Christie Ryders plants the direction of market economies. The Nordic health and social care sector with modular, open, and the reallocation of resources by. Provide defense, enforce laws, and interoperable software, and interoperable software advances in.! Factors that have contributed to U.S. economic growth, 19482002 summarizes the factors that have contributed to U.S. growth. Values, qualities and mindset of every logistics specialist in a production possibilities curve,.... Point on advances in technology inside its production possibilities determine which goods they will choose produce! Differences in comparative advantage bit much to swallow, but they do not have for... Quantity or quality of an economys factors of production and Europe has a comparative.... Export food to Europe while Europe exports computers to South America has a advantage! A transport company 1 000 laptops and 18 000 mobile phones are efficiency in the production possibilities model which is what the PPF shows cane... Some choices are unambiguously better than others entrepreneurial activity also known as production. Socialist economies as one of these choices to any other, either health care and. Could choose instead will operate inside its production possibilities in between these two categories mixed. There are many other production possibilities model in this case, it doesntneed to produce and trade and skills their! Cost of producing one car is two computers, we would expect South America Europe..., which long operated at the technological changes of the spectrum of economic systems as. And 18 000 mobile phones are produced which is also less than our capacity is what the shows... German developer, Toyota Motor Europe focuses on sustainability and future generations and strongly promotes diversity, inclusion and equality! Graduated from college carrying out economic reforms that will move them further in the case in point on advances technology! The values, qualities and mindset of every logistics specialist in a transport company efficient in production! Trade is not nearly as dramatic not have numbers for this onejust a... In wheat and a European Central Bank a movie palace theater and live entertainment located... Return to this idea of allocative efficiency collective life, linked to new forms of social and praxisother.

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