1. Survey of Economics Irvin B. Tucker
Chapter 2 Production Possibilities, Opportunity Cost, and Economic Growth
Lecture Slides
Survey of Economics Irvin B. Tucker
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2. What will I learn in this chapter?
Having learned that scarcity forces choices, here you will study choices people make in more detail
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3. What are the three fundamental economic questions?
What to produce?
How to produce?
For whom to produce?
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4. What are two key concepts in this chapter?
Opportunity costs
Marginal analysis
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5. What is opportunity cost?
The best alternative sacrificed for a chosen alternative
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6. What opportunity cost may you now be experiencing?
The most money that you could be making if you were somewhere else instead of studying these slides
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7. Can opportunity cost be something other than money?
Yes, the most desired good or service or use of time that you are presently giving up is an opportunity cost
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8. Choice Scarcity Opportunity Cost
Exhibit 2-1 The Links Between Scarcity, Choice, and Opportunity Cost
Choice
Scarcity
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9. What is marginal analysis?
An examination of the effects of additions to or subtractions from a current situation
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10. What is an example of marginal analysis?
When your benefit of studying these slides exceeds the opportunity cost, you will spend time studying these slides
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11. What is a production possibilities curve?
A curve that shows the maximum combinations of two outputs that an economy can produce, given its available resources and technology
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12. The body of knowledge and skills applied to how goods are produced
What is technology?
The body of knowledge and skills applied to how goods are produced
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13. What assumptions underlie the production possibilities model?
Fixed resources
Fully employed resources
Technology unchanged
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14. What is the conclusion of the production possibilities curve?
Scarcity limits an economy to points on or below its production possibilities curve
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15. What are efficient points?
Because all the points along the curve are maximum output levels with given resources and technology, they are called efficient points
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16. What happens when we move between two efficient points?
A movement between any two efficient points on the curve means that more of one product is produced only by producing less of the other product
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17. Exhibit 2-2 Production Possibilities Curve
Unattainable points A
160
Unattainable point Z B
140
120
All points on curve are efficient
100
(billions of units per year)
Output of military goods U C 80
Inefficient point 60 40
Attainable points
PPC 20 D 20 40 60 80
100
120
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Output of consumer goods
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(billions of units per year)

18. What is the law of increasing opportunity costs?
The principle that the opportunity cost increases as production of one output expands
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19. Exhibit 2-3 The Law of Increasing Opportunity Costs80 B 70 60 C 50
Tanks
(thousands per year) 40 30 20
PPC 10 D 10 20 30 40 50 60
Sailboats
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(thousands of units per year)

20. What is economic growth?
The ability of an economy to produce greater levels of output, represented by an outward shift of its production possibilities curve.
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21. What makes possible economic growth?
Increase in resources
Technological change
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22. Economic growth Technological Advances Increase in Resources
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23. Exhibit 2-4 An Outward Shift of the Production Possibilities Curve80 B 70 60
Computers (thousands per year) 50 A c 40 30 20 10
PPC1
PPC2
100
200
300
400
500
Pizzas
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(millions per year)

24. What happens when a country does not invest in new technology?
Everything else being equal, the country will not grow
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25. What is investment?
The accumulation of capital, such as factories, machines, and equipment, that is used to produce goods and services
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26. What is the opportunity cost of investment?
A country must decide how to allocate its resources between producing capital goods and consumer goods
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27. Economic growth and a higher standard of living
What does producing capital exceeding the amount required to replenish its depreciated capital?
Economic growth and a higher standard of living
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28. Exhibit 2-5 Alpha’s and Beta’s Present and Future Production Possibilities Curves
(a) Low-investment country Alpha
(b) High-investment country Beta
Capital goods (quantity per year)
Capital goods (quantity per year)
2013 curve
2000 and 2013 curve
2000 curve A B Kb Ka A Ca Cb Cc
Consumer goods (quantity per year)
Consumer goods (quantity per year)
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29. What conclusion can we make about investments?
A nation can accelerate growth by increasing production of capital goods in excess of the capital being worn out
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30. END