Notes #3 - Production Possibilities Frontier Economics MHS Mr. Burdette

What is a PPF? Economic Model Shows how an economy might use its resources to produce two goods. Shows ALL possible combinations

Guns Vs. Butter First mentioned in 1936 – Goebbels Fictitious Country can only produce guns or butter Guns = Military and Defence Butter = Consumption Products

Measuring Opportunity Cost Resources are scarce = Forces Trade-offs – How many tons of butter does 6,000 guns cost? – How many thousands of guns does 2 tons of butter cost? Resources are finite, countries must make decisions on what to produce with them

Economic Efficiency The PPF lines represents an economically efficient use of resources – I.E. MAXIMUM PRODUCTIVITY! Points above the line = impossible Points below the line = ?????

Impossible Production number! (Economically Impossible!)

Underperforming! (Economically Inefficient)

Just RIGHT! (Economically Efficient)

What Moves the Curve? Economic Production Possibilities can change When this occurs the PPF shifts either pushing it OUT or IN

What makes it move? Reduction in Productivity – Natural Disasters – Technological Failures – Government Policies – Recession Growth in Productivity – New Natural Resources – Technological Advances – Government Policies – Growth in Labor Force