Production Possibilities Curve What to produce...in what amount?

What Goods to Produce? Economists look at this question and create what is known as the Production Possibility Curve or Frontier

Production Possibilities Curve Peanuts At this Point What is Being Produced in Greater Quantity? How many Oranges are being produced at this point? Why does the Production of these two products follow a curve? It is bowed out to denote increasing costs Representation of production at its most efficient Important to realize that production can also take place anywhere within the curve. Oranges

Production Possibilities Curve Why would the curve shift inward? Peanuts Problems with Labor Loss of Land Resources Machinery Breaks Down When the economy/business uses less resources than the economy is capable of using it experiences… UNDERUTILIZATION Oranges

Production Possibilities Curve Why would the curve shift outward? Peanuts Increase in the Amount or Quality of Resources More Labor (Population) Increased Productivity from Labor New or Better Resources New or Better Capital Better Education or Health of Labor Technological Advancement Future Production Possibilities Frontier Oranges

Production Possibilities Graph Watermelons (millions of tons) Shoes (millions of pairs) 25 20 15 10 5 Production Possibilities Graph a (0,15) 15 8 14 b (8,14) 14 18 20 21 12 9 5 A production possibilities frontier c (14,12) d (18,9) e (20,5) f (21,0)