1. Production Possibilities

2. Opportunity Cost
When an activity is chosen, the opportunity cost is the benefit expected from the best alternative forgone
Example: If you choose to attend college this year, your opportunity cost is the salary you would have received from the best available full-time job.

3. Production Possibilities
The production possibilities frontier is a curve showing all alternative combinations of goods that can be produced when available resources are used fully and efficiently
Efficiency exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another good

4. The Economy’s Production Possibilities Frontier
Beer
Unattainable (without Trade)
The law of increasing opportunity cost makes the production possibilities frontier concave (bowed-out)
Inefficient
Pizza

5. The Law of Increasing Costs
Beer 8 A
The law of increasing opportunity cost makes the production possibilities frontier concave (bowed-out) 6 B 4 4 6 8
Pizza

6. Shifts in the PPF (Determinants)
Changes in Resources
Changes in the Capital Stock
Human Capital
Physical Capital
Technological Changes

7. An Increase in Resources
Beer
An increase in resources will cause the production possibilities frontier to shift
Pizza

8. A Technological Change
Technological improvement in the production of one good will cause the production possibilities frontier to rotate
Beer
Pizza