Production Possibilities Curves How do economists predict growth, efficiency and costs?

Making Decisions In order to make a production possibility graph as simple as possible economists narrow down problems to the two most likely choices. Breaking News: North Korea has expanded their nuclear arms program and is threating to use new weapons against the United States. What choices does the United States have? Imagine you are the president and fill out the Decision Making chart. How will impending nuclear war influence what the United States produces?

The Law of Increasing Costs

Guns vs Butter The most common example of a real world application of the production possibilities curve is the guns and butter example. What happens to a country’s military as it chooses to produce more consumer goods? What happens to consumer goods as production shifts towards building a military? Famous Historical Examples: -During WWI and WWII consumer goods were rationed in order to support the military. After both wars, a boom in consumer goods led to more spending and economic growth. -Under Josef Stalin the Soviet Union focused on producing as many weapons as possible with as little cost as possible. People starved and went without basic needs as a result

Predictions Beyond Your Curve What would your possibilities production curve look like if, in the future, more labor, land or capital became available?