Production Possibilities Curves

Production Possibilities A production possibilities curve, or graph, shows alternative ways to use an economy’s productive resources. The axes of the graph can show categories of goods, or specific goods. (pg. 14)  Depending on what an economist wants to look at. The line on a production possibilities graph is called the production possibilities frontier. (pg.15)  It shows the maximum amount possible to produce for each product.

Production Possibilities (Cont.) Each spot along the production possibilities frontier represents a trade-off that can be made.  These trade-offs have to be made because land, labor, and capital are scarce.  If you use a resource to produce one product it can’t be used to produce another product. Product possibilities graphs show us how efficient an economy is, whether an economy has grown or shrunk, and the opportunity cost to produce more of one good or service.

Efficiency and Growth An economy is at its most efficient when it is producing on the production possibilities frontier line.  How common is this?  Any point inside the frontier is called underutilization. Economies can shrink or grow.  Why is this?  What would this do to the production possibilities frontier?

Cost When a company looks at their production possibilities graph, cost plays a major role.  What do they have to give up to make more of a certain good?  At what part of the production possibilities frontier are they most profitable? Law of Increasing Costs  As production switches from one item to another, more and more resources are required to produce the second item.  This means the opportunity cost (cost) increases.  This is why production possibilities frontier lines curve. Companies trade off more and more to produce less and less.

Resources and Technology Production possibilities graphs depend on the resources and technology a country has at its disposal.  This can fluctuate based on a variety of things.  What? Where do we stand in terms of resources and technology?