Production Possibility Curve How much are we going to produce??
Do Now: Combinations Grades Wages Earned 1 A $50 2 B 150 3 C 200 Maria has four hours free time each day. She can spend it studying or working at Wang’s Chinese Kitchen for $12.00 per hour. Plot these combinations. Combinations Grades Wages Earned 1 A $50 2 B 150 3 C 200 4 D 210 5 F 240
Answer (1)What are the maximum wages Maria could earn if she works 10 hours each week? (2) What grades can she expect if she works 10 hours each week? (3) What advice would you give Maria if she were earning $50 each week and making D’s?
Why do we use the PPC? The production possibility frontier (PPF) is a curve depicting all maximum output possibilities for two goods The PPF assumes that all inputs are used efficiently. Factors such as labor, capital and technology will affect the resources available, which will dictate where the production possibility frontier lies.
How do economists use this?
Increasing Opportunity Cost
Increasing Opportunity Cost - the more you get of one thing, the more you have to give up for each additional item
Decreasing Opportunity Cost – the more you get of one thing the less you have to give up for each additional item
How does this show a neutral technological change?
How does this show a biased technological change?
Answer these questions! Plot curve What is the most amount that can be saved for college? What would you to give up in order save that much? What do you think the optimal choice is? Explain. What could be done to adjust this curve?
Major Economic Problem The primary economic problem is scarcity. Society has unlimited wants but limited resources.
Why do we use the PPC? A production possibilities curve (PPC) is a model that shows alternative ways that an economy can use its scarce resources. This model graphically demonstrates scarcity trade-offs opportunity costs efficiency
What are the PPC? 4 Key Assumptions Only two goods can be produced Full employment of resources Fixed Resources (Ceteris Paribus) Fixed Technology