Scarcity and PPF`s

Scarcity The basic economic problem that arises because people have unlimited wants but resources are limited.

Production Possibility Curve PPF/PPC Shows the combinations of two or more goods and services that can be produced while using all of the available factor resources efficiently.

Factor Resources Land Labour Capital Enterprise

Types of Goods Consumer Goods- Goods that are consumed by the consumer Capital Goods – Goods that are used to make consumer goods. Tools, Machines, Vehicles, Factories, Etc. This is generally how the graph is labeled. Do not forget to label these graphs.

Combination of goods inside the PPF Combination of goods lying inside the PPF occur when there are: Unemployed resources The economy uses resources inefficiently. Graph it.

Goods outside the PPF Require an increase in factor resources Land, Labour, Capital and Enterprise Increase in the efficiency (or productivity) of factor resources Improvement in technology to reach this point. Graph it.

Shift in PPF Outward The production possibility frontier will shift outward when: There are improvements in productivity and efficiency. Next Slide…………………

In English Better Technology More Machines More Labour Labour force with better skills/education Labour force is more specialised Graph it…………

Immigration This is not always a bad thing. There is an example of immigration policies expanding the workforce of Switzerland in this room. Any ideas?

Shift of PPF Inward A lack of raw materials needed for production. Other causes may include loss of manufacturing capabilities ( a hurricane destroys a factory or power plant) and loss of labour force ( loss of workers due to war, disease, famine, emigration, etc.) Graph it.

Movement along the PPF Movement along the PPF shows the concept of opportunity cost. If the economy is going to produce more of one good, it has to produce less of the other. Graph it.

Curved PPF This is because the extra output resulting from allocating more resources to one particular good may fall. I.e. as we move down the PPF. As more resources are allocated towards one good, the extra output gets smaller – and more of the other good has to be given up in order to produce the extra output.

Curved PPF

Straight Line PPF The PPF does not always have to be drawn as a curve. If the opportunity cost for producing two products is constant, then we draw the PPF as a straight line.

Straight Line PPF