Starter

a) The use of production possibility frontiers to depict: opportunity cost (through marginal analysis) economic growth or decline efficient or inefficient allocation of resources possible and unobtainable production b) The distinction between movements along and shifts in production possibility curves, considering the possible causes for such changes c) The distinction between capital and consumer goods d) The use of production possibility frontiers to depict the maximum productive potential of an economy e) Consideration of actual vs. potential growth of an economy  

Title: What is a production possibility frontier? A-Level Economics Title: What is a production possibility frontier? We will be able to explain opportunity cost We will be able to explain the different factors of production as economic resources. We will be able to discuss and chart production possibility frontiers.

Do you work to live or live to work? http://news.bbc.co.uk/1/hi/business/8570978.stm

Britons continue to work the longest hours in Europe. According to the TUC, the UK working week has now crept up to 43.5 hours – three hours longer than the European average. More than four million full-time employees work more than 48 hours a week (700,000 more than did during the 1990s). One in six employees regularly clocks up more than 60 hours a week. It also found 5.26 million Britons work an average of 7.2 hours of unpaid overtime a week. Stress positively correlates with both depression and coronary heart disease (Tennant, 2001, 2000).

What is the Opportunity Cost? Why is this relevant? Key Term: Opportunity Cost The cost of an activity expressed in terms of the next best alternative, which has to be given up when making the choice.

Production Possibility Curve This shows the maximum quantities of different combinations of output of two products, given current resources and the state of technology The data below shows the various production possibilities for an economy that produces two goods, cars and television sets. Draw the above combinations of products on a graph. Put cars on the vertical axis and televisions on the horizontal axis. How many televisions can be produced when car production is 700? How does this change when 550 cars are produced? How does your diagram illustrate: Choice Scarcity? Cars Televisions 1,000 800 400 600 1,200 200 1,600 2,000

Production possibility frontiers: What is it all about? A production possibility frontier (PPF) shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed

Production possibility frontiers: What is it all about?

For simplicity, lets take a world with only 2 products Lets use beer and pizza (a typical college campus?)

A typical PPF has the following shape:. Pizza Beer The curve has a negative slope. The curve is concave to the origin.

Shape of the PPF? Why Concave? If PPF a straight line, we have constant opportunity costs If PPF concave, we have increasing opportunity costs

Consider a straight line PPF Beer given up, the opportunity cost, remains constant Beer Pizza

Concave shape, increasing opportunity costs. Beer given up, the opportunity cost, is increasing Pizza Beer

What is the Law of Increasing Costs? The opportunity cost of producing a good increases as more of the good is produced

Why does the Law of Increasing Opportunity costs hold? Because resources are not perfectly adaptable to all products

All points on the curve correspond to full use of resources. Pizza Beer A B

Points outside the the PPF are not feasible with existing resources. Pizza Beer .A

Periods of unemployment or inefficiency in production correspond to points under the PPF. Pizza Beer .A

What is the Law of Increasing Costs? The opportunity cost of producing a good increases as more of the good is produced

Theme 1: Introduction to markets and market failure In this theme, students will consider how markets work, looking at how supply and demand interact to allocate resources in local, national and international markets. They will learn how to apply supply and demand analysis to real-world situations and be able to offer explanations of consumer behaviour. This will involve looking at both how consumers act in a rational way to maximise utility and how firms maximise profit, but also why consumers may not behave rationally. 1.1 Nature of economics Subject content 1.1.4 Production possibility frontiers What students need to learn: a) The use of production possibility frontiers to depict: o the maximum productive potential of an economy o opportunity cost (through marginal analysis) o economic growth or decline o efficient or inefficient allocation of resources o possible and unobtainable production b) The distinction between movements along and shifts in production possibility curves, considering the possible causes for such changes c) The distinction between capital and consumer goods

How do we have more of everything? By increasing our resources

Production Possibility Frontier What could increase the PPF?  natural resources found  population (labour)  technology  infrastructure for production

Economic growth indicates an increase in the total output of an economy. The PPF shifts to the right ! Beer .A Pizza

Can a PPF shift inward (to the left)? YES!! For just the opposite reasons as an outward shift such as a loss of resources

Capital vs Consumer Goods

How could a country promote growth How could a country promote growth? What could it invest in that would cause growth in the long term? Read through the article on Learning space and jot down ‘why capital investment matters’ in order to explain why in the long run capital investment is better for growth. Extension activity: Can you draw a PPF for a country that has invested heavily in capital goods? Extension thought: What are the problems with investing heavily in capital goods? Think about trade-offs/ opportunity costs.

Economic growth and the Capital Consumer goods tradeoff: From which point would an economy grow faster, A or B?? Answer is A, with more capital goods Consumer goods Capital goods A B

Which point do you think is the most efficient combination of resources to promote growth in an economy? Why? What are the issues short term? What is the trade off? R Q D C P A Consumer Goods B There is a trade-off between the short and the long run. In the short run, the economy must use resources to produce capital rather than consumer goods. Standards of living are reduced in the short run, as resources are diverted away from private consumption. However, in the longer run the increased investment in capital goods enables more output of consumer goods to be produced. This means that standards of living can increase by more than they would have if the economy had not made the short-term sacrifice. P Q R Capital Goods