1. Starter

3. a) The use of production possibility frontiers to depict:
opportunity cost (through marginal analysis)
economic growth or decline
efficient or inefficient allocation of resources possible and unobtainable production
b) The distinction between movements along and shifts in production possibility curves, considering the possible causes for such changes
c) The distinction between capital and consumer goods
d) The use of production possibility frontiers to depict the maximum productive potential of an economy
e) Consideration of actual vs. potential growth of an economy

4. Title: What is a production possibility frontier?
A-Level Economics
Title: What is a production possibility frontier?
We will be able to explain opportunity cost
We will be able to explain the different factors of production as economic resources.
We will be able to discuss and chart production possibility frontiers.

5. Do you work to live or live to work?

6. Britons continue to work the longest hours in Europe.
According to the TUC, the UK working week has now crept up to 43.5 hours – three hours longer than the European average.
More than four million full-time employees work more than 48 hours a week (700,000 more than did during the 1990s).
One in six employees regularly clocks up more than 60 hours a week.
It also found 5.26 million Britons work an average of 7.2 hours of unpaid overtime a week.
Stress positively correlates with both depression and coronary heart disease (Tennant, 2001, 2000).

7. What is the Opportunity Cost?
Why is this relevant?
Key Term:
Opportunity Cost
The cost of an activity expressed in terms of the next best alternative, which has to be given up when making the choice.

8. Production Possibility Curve
This shows the maximum quantities of different combinations of output of two products, given current resources and the state of technology
The data below shows the various production possibilities for an economy that produces two goods, cars and television sets.
Draw the above combinations of products on a graph. Put cars on the vertical axis and televisions on the horizontal axis.
How many televisions can be produced when car production is 700? How does this change when 550 cars are produced?
How does your diagram illustrate:
Choice
Scarcity?
Cars
Televisions
1,000
800
400
600
1,200
200
1,600
2,000

9. Production possibility frontiers:
What is it all about?
A production possibility frontier (PPF) shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed

10. Production possibility frontiers:
What is it all about?

12. For simplicity, lets take a world with only 2 products
Lets use beer and pizza (a typical college campus?)

13. A typical PPF has the following shape:.
Pizza
Beer
The curve has a negative slope.
The curve is concave to the origin.

14. Shape of the PPF? Why Concave?
If PPF a straight line, we have constant opportunity costs
If PPF concave, we have increasing opportunity costs

15. Consider a straight line PPF
Beer given up, the opportunity cost, remains constant
Beer
Pizza

16. Concave shape, increasing opportunity costs.
Beer given up, the opportunity cost, is increasing
Pizza
Beer

17. What is the Law of Increasing Costs?
The opportunity cost of producing a good increases as more of the good is produced

18. Why does the Law of Increasing Opportunity costs hold?
Because resources are not perfectly adaptable to all products

19. All points on the curve correspond to full use of resources.
Pizza
Beer A B

20. Points outside the the PPF are not feasible with existing resources.
Pizza
Beer .A

21. Periods of unemployment or inefficiency in production correspond to points under the PPF.
Pizza
Beer .A

22. What is the Law of Increasing Costs?
The opportunity cost of producing a good increases as more of the good is produced

24. Theme 1: Introduction to markets and market failure
In this theme, students will consider how markets work, looking at how supply and demand interact to allocate resources in local, national and international markets. They will learn how to apply supply and demand analysis to real-world situations and be able to offer explanations of consumer behaviour. This will involve looking at both how consumers act in a rational way to maximise utility and how
firms maximise profit, but also why consumers may not behave rationally.
1.1 Nature of economics
Subject content
1.1.4 Production possibility frontiers
What students need to learn:
a) The use of production possibility frontiers to depict:
o the maximum productive potential of an economy
o opportunity cost (through marginal analysis)
o economic growth or decline
o efficient or inefficient allocation of resources
o possible and unobtainable production
b) The distinction between movements along and shifts in
production possibility curves, considering the possible
causes for such changes
c) The distinction between capital and consumer goods

27. How do we have more of everything?
By increasing our resources

28. Production Possibility Frontier
What could increase the PPF?
 natural resources found
 population (labour)
 technology
 infrastructure for production

29. Economic growth indicates an increase in the total output of an economy.
The PPF shifts to the right !
Beer .A
Pizza

30. Can a PPF shift inward (to the left)?
YES!! For just the opposite reasons as an outward shift such as a loss of resources

32. Capital vs Consumer Goods

33. How could a country promote growth
How could a country promote growth? What could it invest in that would cause growth in the long term?
Read through the article on Learning space and jot down ‘why capital investment matters’ in order to explain why in the long run capital investment is better for growth.
Extension activity: Can you draw a PPF for a country that has invested heavily in capital goods?
Extension thought: What are the problems with investing heavily in capital goods? Think about trade-offs/ opportunity costs.

34. Economic growth and the Capital Consumer goods tradeoff:
From which point would an economy grow faster, A or B?? Answer is A, with more capital goods
Consumer goods
Capital goods A B

35. Which point do you think is the most efficient combination of resources to promote growth in an economy? Why?
What are the issues short term? What is the trade off? R Q D C P A
Consumer
Goods B
There is a trade-off between the short and the long run. In the short run, the economy must use resources to produce capital rather than consumer goods. Standards of living are reduced in the short run, as resources are diverted away from private consumption. However, in the longer run the increased investment in capital goods enables more output of consumer goods to be produced. This means that standards of living can increase by more than they would have if the economy had not made the short-term sacrifice. P Q R
Capital Goods