Production Possibilities Frontier Write This Down Production Possibilities Frontier

Production Possibilities Frontier Write This Down Production Possibilities Frontier aka PP Curve Definition: diagram representing the maximum amount of goods/services an economy can produce when all of its resources are used.

https://www.youtube.com/watch?v=RP0j3Lnlazs

Product 1 Product 2 This curve represents the maximum amount of two goods a society or business can make using all of their available resources efficiently.

Study AP Student Nerd Regular student Slacker Fun

Production Possibilities Frontier Write This Down Production Possibilities Frontier aka PP Curve Definition: diagram representing the maximum amount of goods/services a economy can produce when all of its resources are used. It represents: Opportunity Cost ● Trade offs = all alternative activities opportunity cost = next highest valued Do trade offs verses opportunity cost overhead activity: ask the students what they could have done instead of being in school today. Then explain that if you ranked them – make up a ranking – all of them are trade offs, but only #1 is the opportunity cost

Capital goods Consumer goods For a country or individual company, this model may show decision on how much of two products to produce. ipods show the investment choice between capital and consumer goods Or…. Tivos Consumer goods

Capital Goods Consumer Goods = Human Made resources used to produce goods and services Consumer Goods goods intended for final use by consumers

Production Possibilities Frontier Write This Down Production Possibilities Frontier aka PP Curve Definition: diagram representing the maximum amount of goods/services a economy can produce when all of its resources are used. It represents: Opportunity Cost ● Trade offs = all alternative activities opportunity cost = next highest valued Do trade offs verses opportunity cost overhead activity: ask the students what they could have done instead of being in school today. Then explain that if you ranked them – make up a ranking – all of them are trade offs, but only #1 is the opportunity cost Capital Goods = Human made resources used to produce goods and services i.e. production tools, machines, equipment

Capital Goods = Human made resources Write This Down Capital Goods = Human made resources used to produce goods and services i.e. production tools, machines, equipment Consumer Goods = goods intended for final use by consumers rather than businesses i.e. ipod, xbox, french fries, etc.

Capital Goods Points on the curve are CHOICES Consumer Goods

Capital Goods Points on the curve are CHOICES Consumer Goods

Capital Goods 100 90 40 70 60 100 Consumer Goods Points on the curve are CHOICES 100 90 40 70 60 100 Consumer Goods

Capital Goods 100 90 40 70 60 Consumer Goods Points on the curve are CHOICES 100 90 40 70 60 Which point You choose depends on your goals Consumer Goods

Capital Goods Consumer Goods Some choices will move the entire curve If you make more capital goods, you can use them in the future to make more consumer goods, you will be capable of producing more Consumer Goods

to make yourself better off You must make yourself worse off in the short run, to make yourself better off in the long run.

to make yourself better off You must make yourself worse off in the short run, to make yourself better off in the long run.

The ship set ground on the shore of this uncharted desert isle http://www.bradyworld.com/cover/minnow.jpg The ship set ground on the shore of this uncharted desert isle

Here on.. With Gilligan, the Skipper too, the millionaire and his wife.. Here on.. the movie star, the professor &MaryAnn

Gilligan and the Skipper had to eat…. The 1st day, they spent 6 hours fishing

But, only caught one fish… On the 2nd day, the Skipper went to fish again..

Gilligan decided to not eat http://www.coracle-fishing.net/corac-pix2/net-11x.jpg The 3rd day he was VERY hungry, but instead of eating he made nets from the vines… http://www.tasaday.com/images/_sl-003.jpg Instead he collected vines

Gilligan decided to not eat http://www.coracle-fishing.net/corac-pix2/net-11x.jpg On the 4th day, nearly starving… he used his net http://www.tasaday.com/images/_sl-003.jpg Instead he collected vines http://www.surfingforlife.com/g/cult_b10.jpg

He caught so many fish that he could spend more time doing other things… http://www.zeroimpactproductions.com/seine-over-freezer.jpg

http://www. riveroflifefarm http://www.riveroflifefarm.com/images/lodging/th/th2/tree-house-summer.jpg

Capital Goods This is GOOD! = economic growth Consumption Goods If the PP shifts outward

Capital Goods This is BAD!! = economic decline Consumption Goods If the PP shifts inward

Capital Goods = Human made resources Write This Down Capital Goods = Human made resources used to produce goods and services i.e. production tools, machines, equipment Consumer Goods = goods intended for final use by consumers rather than businesses i.e. ipod, xbox, french fries, etc.

Consumer Goods = goods intended for final Write This Down Consumer Goods = goods intended for final use by consumers rather than businesses i.e. ipod, xbox, french fries, etc. Economic Growth Economic Decline

Capital Goods Consumption Goods Lets start with the good…

Five Variables that Shift the PP Outward: Increase the productive labor force (# or productivity). The parents of the baby boomers increased their future productive labor force by having a LOT of babies New regulations/methods can increase employee productivity

Consumer Goods = goods intended for final Write This Down Consumer Goods = goods intended for final use by consumers rather than businesses i.e. ipod, xbox, french fries, etc. Economic Growth Economic Decline

5 Shifters - things that will move curve out Write This Down Economic Growth Economic Decline 5 Shifters - things that will move curve out Increase the productive labor force (# or productivity).

Five Variables that Shift the PP Outward: Increase the productive labor force (# or productivity). Increase the quantity and quality of natural resources. A company could find a new mine, or get to a more pure vein…

5 Shifters - things that will move curve out Write This Down 5 Shifters - things that will move curve out Increase the productive labor force (# or productivity). Increase the quantity and/or quality of natural resources.

Five Variables that Shift the PP Outward: Increase the productive labor force (# or productivity). Increase the quantity and quality of natural resources. 3. Increase the quantity and quality of capital. A farming company could purchase more or better equipment

5 Shifters - things that will move curve out Write This Down 5 Shifters - things that will move curve out Increase the productive labor force (# or productivity). Increase the quantity and/or quality of natural resources. Increase the quantity and/or quality of capital.

Five Variables that Shift the PP Outward: Increase the productive labor force (# or productivity). Increase the quantity and quality of natural resources. 3. Increase the quantity and quality of capital. 4. Increase health and education.

5 Shifters - things that will move curve out Write This Down 5 Shifters - things that will move curve out Increase the productive labor force (# or productivity). Increase the quantity and/or quality of natural resources. Increase the quantity and/or quality of capital. 4. Increase health and education.

Five Variables that Shift the PP Outward: Increase the productive labor force (# or productivity). Increase the quantity and quality of natural resources. 3. Increase the quantity and quality of capital. 4. Increase health and education. 5. Increase technology.

5 Shifters - things that will move curve out Write This Down 5 Shifters - things that will move curve out Increase the productive labor force (# or productivity). Increase the quantity and/or quality of natural resources. Increase the quantity and/or quality of capital. 4. Increase health and education. 5. Increase technology.

The opposite is also true… Japan 1940

What do you think happened to the quantity and quality of its natural resources? Capital Japan 1945 Consumption

What do you think happened to the quantity and quality of its capital stock? Capital Japan 1945 Consumption

What do you think happened to its health and education? Capital Japan 1945 Consumption http://hiroshima.tomato.nu/image/park_ma/e11-10.jpg

What do you think happened to its technology? Capital Japan 1945 Consumption

What happened to Japan’s Capital Japan 1945 Consumption

Capital Goods Consumption Goods Developed countries produce capital goods Undeveloped countries produce consumption goods (i.e. food) Consumption Goods

http://www. ellsworthamerican http://www.ellsworthamerican.com/archive/news2000/08-24-00/news3_08-24-00b.gif

Capital Goods Ethiopia Consumption Goods Produce Consume = Starve

Capital Goods Consumption Goods Ethiopia

Capital Goods Consumption Goods Ethiopia We sent food and $ which just prolonged the problem. Solution: send capital goods instead Reality: we sent trackers, but forgot to send gas Consumption Goods Ethiopia

Capital Goods Iraq Oil Consumption Goods Sand?

5 Shifters - things that will move curve out Write This Down 5 Shifters - things that will move curve out Increase the productive labor force (# or productivity). Increase the quantity and/or quality of natural resources. Increase the quantity and/or quality of capital. 4. Increase health and education. 5. Increase technology. A decrease in any would have opposite effect, It would shift curve inward.

Guns Military Butter Consumption goods

The Advantages

Write This Down The Advantages

The Advantages Absolute Advantage Comparative Advantage Write This Down The Advantages Absolute Advantage One entity can produce something absolutely faster than or greater than another entity. Comparative Advantage One entity can produce something at a LOWER MARGINAL OPPORTUNITY COST than another entity.

Ireland Puerto Rico Crystal Rum Crystal Rum A B C 1 million 0 700,000 A 80,000 B 40,000 C C 30,000 100,000 Rum 40,000 80,000 Rum Ireland Puerto Rico Crystal Rum Crystal Rum A B C 1 million 0 700,000 30,000 0 100,000 A B C 80,000 0 40,000 40,000 0 80,000

ADDITIONAL W/ SPECIALIZATION & TRADE Crystal Crystal A 1 million B 700,000 A 80,000 B 40,000 C C 30,000 100,000 Rum 40,000 80,000 Rum Ireland Puerto Rico IRELAND ON THEIR OWN ADDITIONAL W/ SPECIALIZATION & TRADE PRODUCE TRADE CONSUME - = -175,000 +35,000 825,000 35,000 700,000 30,000 +125,000 +5,000 1 Million Crystal 0 Rum PUERTO RICO - +175,000 -35,000 175,000 45,000 40,000 = +135,000 +5,000 0 Crystal 80,000 Rum

ADDITIONAL W/ SPECIALIZATION & TRADE 175,000 Crystal Crystal A 1 million D 825,000 700,000 A B 80,000 40,000 B 35,000 C 45,000 C 30,000 100,000 Rum 40,000 80,000 Rum Ireland w/ trade Puerto Rico IRELAND ON THEIR OWN ADDITIONAL W/ SPECIALIZATION & TRADE PRODUCE TRADE CONSUME - = -175,000 +35,000 825,000 35,000 700,000 30,000 +125,000 +5,000 1 Million Crystal 0 Rum PUERTO RICO - +175,000 -35,000 175,000 45,000 40,000 = +135,000 +5,000 0 Crystal 80,000 Rum

D 175,000 Crystal Crystal A 1 million D 825,000 700,000 A B 80,000 40,000 B 35,000 C 45,000 C 30,000 100,000 Rum 40,000 80,000 Rum Ireland Puerto Rico Which country is obviously better off through this specialization and trade? Both Countries are!!! Both countries are now outside their own production capabilities. Through specialization and trade all parties are better off.

The Advantages Absolute Advantage Comparative Advantage Write This Down The Advantages Absolute Advantage One entity can produce something absolutely faster than or greater than another entity. Comparative Advantage One entity can produce something at a LOWER MARGINAL OPPORTUNITY COST than another entity. * CA is used to decide who should produce what

Lets discuss each part of the graph Product 1 PP CURVE Productively Efficient ON THE CURVE = CURVE = Inefficient or underused resources INSIDE THE Product 2

= Not using all of your resources Inside the Curve = Not using all of your resources Unemployment Discrimination in hiring - Gender (ex: women in 1950’s) - Race - Religion Unused Capital or technology (ex: laws, restrictions, bans)

Lets discuss each part of the graph Product 1 PP CURVE Productively Efficient ON THE CURVE = OUTSIDE THE CURVE = Unattainable, can’t PRODUCE. But, can CONSUME via Specialization & Trade CURVE = Inefficient or underused resources INSIDE THE Product 2

Add this PP Graph to your notes Product 1 PP CURVE Productively Efficient ON THE CURVE = OUTSIDE THE CURVE = Unattainable, can’t PRODUCE. But, can CONSUME via Specialization & Trade CURVE = Inefficient or underused resources INSIDE THE Product 2