Production Possibilities Curve

Production Possibilities Curve Graph that shows the different combinations of goods and services the country or business can produce in one year if it uses its resources fully and efficiently. Illustrates what combination of two products is possible with a given amount of resources.

PPC Illustrates several important concepts Scarcity – If the country/business did not have limited resources there would be no limit on what they could produce. Choice – because the country/business has limited resources, it must decide on a combination of goods to produce Opportunity Cost – in choosing one particular combination of goods and services to produce, the country/business is giving up other possible combinations. The highest valued alternate combination represents the opportunity cost. http://www.youtube.com/user/mjmfoodie#p/c/336C870BEAD3B58B/8/ApWWs_sZQQg

Graph the following Military Goods Consumer Goods 5000 4800 1000 4500 2000 4000 3000 3300 6000

Country’s PPC Guns – Military Goods Butter – Consumer Goods Guns A B C 5000 D H 4000 E 3000 I 2000 F 1000 G 1000 2000 3000 4000 5000 6000 Butter

Law of Increasing Opportunity Cost The PPC is bowed outward – (concave) because of the law of increasing opportunity cost Based on the fact that some resources are better suited to produce one good than another good Some PPC’s have a constant opportunity cost (hours, grades) while some have a decreasing opportunity cost (organizing your trash)

Example of a Farmer Imagine that a farmer grows both corn and soybeans. He can afford to hire 10 workers, but if he uses them all in the corn field, he is wasting his labor resources. He could move some workers to the soybean field. If he did he would achieve a big marginal benefit in his soybean production, while causing only a small decline in his corn production. This would be a more efficient use of his resources because he would achieve greater overall production without increasing his costs.

The Farmer’s Production Possibilities Curve 75 d b Corn (in hundreds of pounds) 50 e 25 c 25 50 75 Soybeans (in hundreds of pounds) Points outside the PPC are IMPOSSIBLE at this time. The only way to get to a point outside is to increase resources. Points inside the PPC means that the resources are not being fully and efficiently used (wasted). Anywhere on the line represents fully utilized resources.

Opportunity Costs of moving along the PPC 120 b 100 c 80 Microwaves (in thousands 60 d 40 20 e 20 40 60 80 Computers (in thousands) What are the trade-offs at each point? (How many microwaves v. computers?) What is opportunity cost in microwaves of moving from point c to point d? What is the opportunity cost in computers of moving from point c to point b?

An individual’s PPC http://www.youtube.com/user/mjmfoodie#p/c/6/JCEWQ_cafUs

My Time PPC Identify the number of hours you have available for after-school in 1 week. Identify two activities in which you SHOULD and wish to engage in during their after-school hours. Let those represent the X and Y axis. Use the hours available as the basis for your production possibilities curve. Create the PPC plotting 3 different possible points in which you fully utilize all your hours. Plot one point that is outside the PPC, and one that is inside the PPC.

Mrs. Clements After school hours 7 A E 6 5 B Housework (Chores) 4 D 3 2 1 1 2 3 4 5 6 7 Spend time with family

What are the trade-offs between the two activities? Answer the following questions on your paper. Be specific in your answers and write in complete sentences. (1-2) What are the trade-offs between the two activities? Identify situations that could cause you to produce at a point inside your Production Possibilities Curve (PPC) Discuss the dangers of temporarily trying to reach a point outside the curve. Identify strategies that would allow you to shift the PPC outward. Which point would you choose? Why? Put an arrow next to that point.

Questions What are the trade-offs between the two activities? Identify situations that could cause you to produce at a point inside your Production Possibilities Curve (PPC) Discuss the dangers of temporarily trying to reach a point outside the curve. Identify strategies that would allow you to shift the PPC outward.