Do Now Imagine you and two friends are planning a party for the class… Plan who will do what to prepare for the party…

Production Possibilities Curve

Warning: Curves ahead!! Economists use graphs to analyze the choices and trade-offs that people make - graphs help us see how one value relates to another value Production Possibilities Curve: a graph that shows alternative ways to use an economy’s resources

Production Possibilities Frontier: a line on the production possibilities curve that shows the maximum possible output an economy can produce –Shows the possible combinations of the production multiple products Remember – all resources are scarce. A production possibilities curve helps show the best way to allocate (divide) these scarce resources

Efficiency, Growth & Cost Efficiency: the use of resources to maximize the output of goods and services

Underutilization: the use of fewer resources than an economy is capable of using –any point inside the production possibilities frontier indicates underutilization

GROWTHGROWTH A production possibilities curve is like a snapshot – it shows current production possibilities of a country’s resources at one moment in time If the quantity or quality of a land, labor, or capital changes, then the curve will move

To the right, to the right, to the right, to the right….. When an economy grows, economists say that the production possibilities curve has “shifted to the right”

To the left, to the left, to the left, to the left When a country’s production ability decreases, the curve shifts to the left –Ex: when a country loses land as a result of war

Cost – it’s not always about $$ Law of increasing costs: as production shifts from making one item to another, more and more resources are necessary to increase production of the second item –Opportunity cost increases

Technology is one of the factors that can increase a nation’s efficiency, therefore governments spend $$$ investing in new technology… For the same reason, they may also invest in education and training so that its people can develop and use new technologies… Highly skilled workers can increase efficiency and lead to economic growth…