Power Point #4 Production Possibilities Curve What to produce...in what amount?

Essential Question Explain the Production Possibilities Curve Froniter

Introduction The Production Possibilities Frontier (PPF) is a graph that shows all possible combinations of two goods when an economy is producing at full potential. It does not actually show reality, since it assumes only two goods are produced. It is a simplification that shows what sort of trade-offs would be made in reality. It only shows what can be produced – not what would be consumed.

When you go to the store with $20, do you say to yourself (as you are decided how much you can afford to buy): y+ 3x =20

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

What do you need for production to be at its most efficient to allow for the optimal the Production Possibilities Curve?

Factors of Production (Scarce Resources) Slide from Power Point #2 Factors of Production (Scarce Resources) Land - natural resources of “gifts of nature” Labor - physical and mental talents of workers Capital - tools, machinery, manufactured goods used to produce consumer goods Investment Entrepreneurial Ability - the idea or “sparkplug”, innovation, risk

Scarce Resources Defined Slide from PowerPoint #1 Scarce Resources Defined Since all resources are limited we are forced to make economic choices – how to use our resources to accomplish “maximum satisfaction”. The Economizing Problem Opportunity Cost

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

Opportunity Cost (PPT#1) Definition: the loss of potential gain from other alternatives when one alternative is chosen. What was the example given in PowerPoint #3 that is the common example used?

The Guns versus Butter model This is an example of Opportunity Cost A nation chooses between a nation's investment in defense and civilian goods. In this example, a nation has to choose between two options when spending its Scarce Resources. Example: WWII – Total War, all resources were needed, many resources on the “butter” side were rationed for “guns” or what was needed for the military

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

After WWII Example Economic boom 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