Production Possibilities Frontier 1 st Economic Graph

Define Efficiency Achieving the maximum benefit from a given amount of scarce resources Scarce Resources Produce New Products

Productions Possibility Frontier PPF graph is an economic model which illustrates the full potential economic output of a country Assumptions: –The country only produces two products –Works at full efficiency (a country’s full potential) –Uses all of scarce resources to produce both goods That means all labor, physical capital, human capital etc…

Productions Possibility Frontier Constant Cost PPF Graph (straight line PPF) Qty Food Qty Shelter. B. A. C (100, 0) (0,100) (50,50) Any point above line is Unobtainable in Short Run with existing resources Any point on line is Efficient production of goods. Country is at full potential Lowest unemployment rate Job = Human Capital Companies all efficient Any point below line is Inefficient

Country A Cars Computers Long Run Goal for Society To shift PPF to the right (gain more from output from the same resources ) To shift right: Invest in technology Invest in education Become more efficient Discover new resources Increase in population

PPF Summary PPF Line represents all efficient production points –It is a countries “full potential” output with existing resources –It is the best a country could achieve in the short run Points below are inefficient –Country is wasting scarce resources Points above are unobtainable in –With current level of technology & resources Long Run goal is to shift the line outward –By becoming more efficient through increases in technology, education, investment, etc….

Worksheet

Which Society is more EFFICIENT?

U.S. Economy in 2013 Why below PPF? Unemployed workers (labor) Underutilized Human Capital (underemployment) Empty office buildings (land & physical capital) Empty Factories

Which Society is more EFFICIENT? Country A Cars Computers Country B