3 Basic Questions a Society Must Face

Production Possibilities Production Possibilities curve – a diagram representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed. What is the opportunity cost of scoring a 75% on the calculus test?

The most famous PPC example MILITARY V. CIVILIAN

A Two-Product Farmer’s Possible PPF

Why is the yellow area inefficient production? Why is the white area unattainable production? What would have to happen to move into the white area?

What are… CAPITAL GOODS? CONSUMER GOODS? OPPORTUNITY COSTS?

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Lessons in Specialisation: It’s about efficiency, not quantity! Should Angola and Botswana produce both potatoes and shoes?

Absolute v. Comparative

What can we learn from the PP Model? The Production Possibility model provides valuable lessons in: Opportunity Cost Specialisation Trade Theory Resource Utilisation & Efficiency Full Employment

Note: Opportunity Cost is usually not limited to just 1 other option From nationalpriorities.org -- the cost of the war in Iraq > $600 billion spent (Feb 2009) Possible Opportunity Costs: >90 million kids attending head start programs >193 million people w/ health care for 1 year >10.7 million additional teachers for 1 year >5.1 million additional housing units >101 million full 1 year university scholarships