As the U.S. entered WWII in 1941, it faced an urgent task: create the weapons and equipment needed to win the war or face defeat. Government agencies took the lead in switching the output of America’s factories, farms, and mines from the production of consumer goods to production of military products.

Economists often use graphs to analyze the choices and trade- offs that people make. Why?

PRODUCTION POSSIBILITIES CURVE (PPC)—a graph that shows alternative ways to use an economy’s resources How to draw a PPC:

graphing the 2 objects opposite each other gives you a visual to analyze the opportunity cost of choosing a particular level of production the 2 axis represent producing only one or the other & the line connecting them (PPF) shows the maximum possible production

PRODUCTION POSSIBILITIES FRONTIER (PPF)— line of a PPC that shows the maximum possible output PPCs allow us to visually evaluate the efficiency (location of points in relation to the PPF), underutilization, growth (shift of PPF), & cost (amount given up of one to increase the other)

What causes a movement along the curve? -Shifting resources from one good to another A point inside the curve represents: inefficient use of resources – can produce more A point outside the curve represents: cannot be done without additional resources

EFFICIENCY—using resources in such a way as to maximize the production of goods & services DIMINISHING RETURNS – as we move closer to producing all of one good, we have to give up more of the other – resource uses not maximized. UNDERUTILIZATION—using fewer resources than an economy is capable of using COST—same as opportunity cost; alternative given up because of a decision * the closer a point is to the PPF on a PPG, the more efficient it is; the further away, the less efficient

LAW OF INCREASING COSTS—law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases demonstrated by an the PPF getting closer to horizontal/vertical at either extreme (w/o the line would be relatively straight) EXAMPLE: if you are choosing between grapes & a factory, the more land you use for the factory you will use less & less choice land for the grapes