+ Dreaded Disease What would be the “market” solution to the problem? Benefits? Opportunity cost? What would be the command solution to this problem? Benefits? Opportunity cost?

+ Production Possibilities Curve

+ Today’s Objective After today’s lesson, students will be able to… Describe Productions Possibility Curve and illustrate it graphically Essential Skill: Demonstrate understanding of concepts

+ Squares and Triangles Create as many squares or triangles as you would like Have the # of squares and # of triangles ready to share Record as we go over

+ Triangles and Squares PPC Triangles Squares

+ The Model

+ Assumptions of the Model These assumptions enforce ***CETERIS PARIBUS*** 1.“All things being equal” 2.Allows us to isolate and analyze the relationship between 2 variables because all other variables are held constant

+ Illustrates ALL Potential Trade-Offs The United State’s production (of their simplified 2 good economy) capabilities are illustrated below

+ ALONG (or on) the Curve ANY point along the curve is feasible and fully utilizing ALL available resources (land, labor, capital)

+ UNDER or BEYOND the Curve UNDER the curve is attainable by the modeled economy—but not efficient. Unemployment, idle resources* BEYOND the curve is unattainable with current resources.

+ Idle Resources* So, being under the curve has no opportunity cost!

+ Constant Opportunity Cost Curve is a straight line…constant slope. Ex- red/blue m&ms, squares and triangles

+ Increasing Opportunity Cost When the slope changes…negative increasing curves. This implies that resources are not equally adaptable to all uses. Example: Steel in Automobiles vs. Tanks curve, learning a sport or language

+ Law of Increasing Opportunity Cost The more an economy polarized production the greater cost, in terms of production, it will have to produce (opportunity costs are increasing = slope increasing!!!). Why the curve bows An economy is giving up more of good 2 to produce more of good 1 This is because of the fact that resources are frequently specialized An opportunity cost always exists unless there is a free good (like air)

+ Economic Growth Illustrated both in overall performance, or by sector. Overall = both intercepts increase Sector = one variable of production increases, one intercept increase Result from new technology, improved labor, or more capital