You want to start a business. Warm-Up You want to start a business. What good or service would you provide. (Keep it to something you can discuss with Grandma) How would you produce it? How would you determine who would need it?

What is a production possibility curve? Learning Goal Today What is a production possibility curve?

Production Possibilities Curve

Production Possibility Curve A curve showing the rates of two goods or services an economy can produce efficiently in a given period of time.

How it Works

What Happens with A Country

Curves Can Shift Right or Left An outward shift of the frontier might be due to: • more training of employees, enabling them to be more productive; • greater investment in capital goods such as machines and equipment—in the short run this would mean that resources would have to be shifted from consumption goods toward capital goods, and in the long run greater investment would enable the economy to produce more products for consumption; • an increase in the population size, for example, through immigration; • improvements in technology providing better ways of doing things.

Shift Inward: Change if factors of production Natural Disaster Labor Shortage Resources Scarce Expensive

Comparative Advantage Concept in economics that a country should specialize in producing and exporting only those goods and services which it can produce more efficiently (at lower opportunity cost) than other goods and services (which it should import).

Absolute Advantage Entities with absolute advantages can produce something using a smaller number of inputs than another party producing the same product

Answering The Basic Economic Questions What to produce? How to produce it? For whom to produce it for?

What To Produce Basic Needs- Food, Clothing, Shelter Wants (Luxury Items) Services- Education, Health Care, Public Safety

How to Produce It Size, Organization, and Facilities Resources Time and Effort

Who? Choices Value Access to goods or service

Economic Systems Each Economic System Answers the Basic Economic Questions: What to Produce How to Produce it To whom to Produce it For

Types of Economic Systems Traditional Command Market Mixed

Traditional Local Handed down from parent to child Example: Fishing

Command Government controls/owns all factors of production and answers all economic questions. Government decides who will make and what is made Example: North Korea

Market System Consumer answers the economic questions by purchasing goods or services they want or need. Example: United States

Mixed System The government has some control over the resources. They may own the utilities or natural resources or regulate what may be produced. Example: England and Sweden