1. The Production Possibilities Model
HL1 ECONOMICS

2. PRODUCTION POSSIBILITY MODEL
The production possibilities model displays the different output combinations of two goods OR services that a economy can produce.
It assumes full employment, fixed availability and supply of resources and constant technology.
The model involves the drawing of a simple graph with a production possibility curve. This curve is also called the production possibility frontier.

3. Production Possibility Model
Any point on the curve means that the nations resources are being used in the most efficient manner possible, but the specific location on the curve can produce very different outcomes.

4. PRODUCTION POSSIBILITY MODEL
If the production of a nation falls INSIDE the curve rather than on the curve, it means that they are not producing the maximum amount of output possible. Any point inside the curve is attainable but undesirable.
On the other hand, a point OUTSIDE the curve, is unattainable at the moment and new technology or labour techniques will need to be developed to reach this point.

5. Y = Level of production not yet possible in this Economy.
Y will only be achieved with new technology or improvement in labour techniques.
X = The Underutilisation of Resources. The economy is not maximising its potential. Technology is inadequate or labour is inefficient.

6. Adding Numbers to Production Possibility Curves: Lessons in Opportunity Cost
We can add numbers to the production possibility model to identify different output combinations.
It will therefore be possible to visually identify the opportunity cost of various production decisions.

7. opportunity cost of Economic decisions.
The Production Possibility Model allows us to identify the
opportunity cost of Economic decisions.

8. Lessons in Specialisation
Country: XYZ
Lessons in Specialisation
In this graph, it would appear the country is more efficient at producing Soybeans than Sugar.
If all resources are only used to produce soybeans 20 tonnes is produced. If all resources are used to make just sugar only 10 tonnes can be produced. If the country cannot trade it must produce some combination of these goods, but this would be inefficient and the combined output would be less than 20 tonnes. It would be best to specialise in making just soybeans, and import sugar instead.
Sugar

9. Lessons in Specialisation Countries should specialise in the production of goods and services when they can produce those goods/services more efficiently (greater output) than other countries. Angola should specialise mainly in Potato production, and Botswana shoes.

10. A shift in the production possibility frontier
The graph shown here demonstrates the effects of changes in the assumptions about the economy in the production possibilities model. The shift in the curve represents the consequences of the differing assumptions. In this scenario, food production technology has improved and therefore production of food can increase by 25% or 25 units.
Note that clothing technology or labour techniques have not changed.

11. How is the movement in the production possibility frontier in this graph different to the previous graph?

12. What can we learn from the Possibility Model?
The Production possibility model provides
valuable lessons in:
Opportunity cost
Specialisation
Trade Theory
Resource Utilisation & Efficiency
Full employment