1. PRODUCTION POSSIBILITIES CURVES
CH. 1.3

2. I. PRODUCTION POSSIBILITIES
A. Production Possibilities Curve, or graph: a graph that shows alternative ways to use an economy’s resources
Axes on graphs show g+s

3. I. PRODUCTION POSSIBILITIES
B. Drawing a P.P. Curve
1. Pick the g+s to examine
EXAMPLE: a gov’t chooses to examine the production of watermelons and shoes
2. Figure out 2 extreme options
EXAMPLE: no shoes, all watermelons ~OR~ all shoes, no watermelons

4. I. PRODUCTION POSSIBILITIES
B. Drawing a P.P. Curve (cont.)
3. Use data to figure out other alternatives where both can be produced
Production Possibilities Frontier: the line on the P.P. Curve that shows the maximum possible outputs
EXAMPLE: this shows when all resources are being used to produce a max. combination of the 2 products (watermelons and shoes)
Each point on the P.P. Frontier represents a trade-off

5. I. PRODUCTION POSSIBILITIES
This shows step 3

6. II. EFFICIENCY, GROWTH, & COST
A. Efficiency: using resources in such a way as to maximize the production or output of g+s

7. II. EFFICIENCY, GROWTH, & COST
A. Efficiency
Sometimes economies are inefficient
When this happens, a point is made inside the P.P.Frontier
Underutilization: using fewer resources than the economy is capable of using

8. II. EFFICIENCY, GROWTH, & COST
B. Growth
Realistically, the P.P.Frontier is going to constantly be changing
When an economy grows, the line will “Shift to the Right”
When an economy decreases in production capacity, the line will “Shift to the Left”

9. II. EFFICIENCY, GROWTH, & COST
C. Cost: the alternative we give up when we choose one option over the other (just like O.C.)
BASICALLY…we have to sacrifice something for another

10. II. EFFICIENCY, GROWTH, & COST
C. Cost
Law of increasing costs: as production shifts from 1 item to another, more & more resources are necessary to increase production of the 2nd item
BASICALLY…if you make more watermelons, you must have more stuff (land, labor, capital, and entrepreneurs) to make them
This is why the P.P.Frontier curves and is NOT a straight line

11. Where is the map

12. Brazil – missionary housing

13. Brazil - slums

14. The facts before us Economies are defined by scarcity.
Scarcity forces people to make choices
Choices involve costs
Since we all face different costs, by specialization and trading we can create wealth
Markets form to facilitate trade

15. THE GRAND SYNTHESIS – Comparative Advantage and the Tale of Robinson Crusoe