ILLUSTRATING OPPORTUNITY COST FALL 2013 The Production Possibilities Curve

I. The Production Possibilities Frontier (curve)  Illustration of the trade-offs facing an economy, modeling only two goods  Shows the maximum quantity of one good that can be produced for any given production of the other  Visual representation of efficiency, opportunity cost – and often growth

The Production Possibility Frontier Quantity of coconuts A B D C Quantity of fish

Increasing Opportunity Cost A Quantity of coconuts Quantity of fish

Economic Growth

PPC Practice Draw a PPC showing changes for each of the following: Pizza and Robots 1.New robot making technology 2.Decrease in the demand for pizza 3.Mad cow disease kills 85% of cows Consumer goods and Capital Goods 4.BP oil spill in the Gulf 5.Faster computer hardware 6.Many workers unemployed 7.Significant increases in education 6

New robot making technology Quantity of Robots Quantity of Pizzas Question #1 7

Decrease in the demand for pizza Question #2 8 Quantity of Robots Quantity of Pizzas

Mad cow disease kills 85% of cows Question #3 9 Quantity of Robots Quantity of Pizzas

BP Oil Spill in the Gulf Quantity of Capital Goods Quantity of Consumer Goods Question #4 10

Faster computer hardware Quantity of Capital Goods Quantity of Consumer Goods Question #5 11

Many workers unemployed Question #6 12 Quantity of Capital Goods Quantity of Consumer Goods

Significant increases in education Quantity of Capital Goods Quantity of Consumer Goods Question #7 13