1. Production Possibilities Frontier Economics Unit One: Basic Economic Concepts

2. Production Possibilities Curve (Production Possibilities Curve and Production Possibilities Frontier are used interchangeably) Production Possibilities Curve is a graphic representation of all possible combinations of two goods that an economy can produce. The line shows the maximum possible output for a specific economy EOC study guide Basic Economic Concepts #3 links smiles

3. Production Possibilities Frontier demonstrates scarcity Production possibilities graphs show alternative ways to use an economy’s resources The axes display any pair of goods and services Smiles and links Computers and cars Farm goods and factory goods Military goods and consumer goods links smiles

4. Scarcity Means Governments Must Chooses Between Guns and Butter Governments have to decide how many resources to devote toward the military and how many resources to devote toward consumer goods Classic case of guns versus butter 4

5. "Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.” “The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement.” “We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.” -Dwight Eisenhower Speaking against the military build up of the cold war 5

6. The USS Dwight Eisenhower 6 Launched in 1975 and cost $679 million ($4.5 billion in 2007 dollars) 6

7. PPF Illustrates Opportunity Costs and Marginal Thinking What is the opportunity cost of moving your production from Q to R? What is the opportunity cost of moving your production from T to V?

8. Why Increasing Opportunity costs? Not all resources are equally suited for all goods In example below to increase the number of computers from 9 to 10 you must start hiring workers who are skilled at growing food, but know little about technology

9. PPF Illustrates Efficiency Efficiency is the use of resources so as to maximize the production of goods and services. Which point(s) shows this economy working at its most efficient level of production? Which point(s) indicates an underutilization of resources? Which point(s) shows an unattainable level? Most efficient Underutilization of resources Impossible!

10. PPF Illustrates Growth A production possibilities curve reflects the country’s current production possibilities What happens when the quantity of resources (factors of production) changes? When more natural resources (land) become available? When the working age population (labor) increases? When a new technology (physical capital) is invented?

11. PPF Can Shrink What happens when the quantity of resources (factors of production) decreases? When more natural resources (land) are destroyed? Fire, earthquake, flood When the number of workers (labor) decreases? Baby boomers retire, large numbers of illegal immigrants shipped out of the country When a human capital decreases? Large numbers of students don’t go to college and don’t have the knowledge necessary to fill the previous generations shoes

12. What does it look like if Only one good’s output is increased? Let’s say a new machine is created that speeds up the time it takes to manufactures guns This new technology does NOT however effect the production of butter Now what happens to the frontier????