1. Production Possibilities Frontier
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Production Possibilities Frontier

2. Production Possibilities Frontier
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Production Possibilities Frontier
aka PP Curve
Definition: diagram representing the
maximum amount of goods/services an
economy can produce when all of its
resources are used.

4. Product 1
Product 2
This curve represents the maximum amount of two
goods a society or business can make using all of
their available resources efficiently.

5. Study
AP Student
Nerd
Regular student
Slacker
Fun

6. Production Possibilities Frontier
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Production Possibilities Frontier
aka PP Curve
Definition: diagram representing the
maximum amount of goods/services a
economy can produce when all of its
resources are used.
It represents: Opportunity Cost
● Trade offs = all alternative activities
opportunity cost = next highest valued
Do trade offs verses opportunity cost overhead activity: ask the students what they could have done instead of being in school today. Then explain that if you ranked them – make up a ranking – all of them are trade offs, but only #1 is the opportunity cost

7. Capital goods Consumer goods
For a country or individual company, this model may show decision on how much of two products to produce.
ipods
show the investment choice between capital and consumer goods
Or….
Tivos
Consumer
goods

8. Capital Goods Consumer Goods
= Human Made resources used to produce goods and services
Consumer
Goods
goods intended for final use by consumers

9. Production Possibilities Frontier
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Production Possibilities Frontier
aka PP Curve
Definition: diagram representing the
maximum amount of goods/services a
economy can produce when all of its
resources are used.
It represents: Opportunity Cost
● Trade offs = all alternative activities
opportunity cost = next highest valued
Do trade offs verses opportunity cost overhead activity: ask the students what they could have done instead of being in school today. Then explain that if you ranked them – make up a ranking – all of them are trade offs, but only #1 is the opportunity cost
Capital Goods = Human made resources
used to produce goods and services
i.e. production tools, machines, equipment

10. Capital Goods = Human made resources
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Capital Goods = Human made resources
used to produce goods and services
i.e. production tools, machines, equipment
Consumer Goods = goods intended for final
use by consumers rather than businesses
i.e. ipod, xbox, french fries, etc.

11. Capital
Goods
Points on the curve are CHOICES
Consumer
Goods

12. Capital
Goods
Points on the curve are CHOICES
Consumer
Goods

13. Capital Goods 100 90 40 70 60 100 Consumer Goods
Points on the curve are CHOICES
100 90 40 70 60
100
Consumer
Goods

14. Capital Goods 100 90 40 70 60 Consumer Goods
Points on the curve are CHOICES
100 90 40 70 60
Which point
You choose depends on your goals
Consumer
Goods

15. Capital Goods Consumer Goods Some choices will move the entire curve
If you make more capital goods, you can use them in the future to make more consumer goods, you will be capable of producing more
Consumer
Goods

16. to make yourself better off
You must make
yourself worse off
in the short run,
to make yourself better off
in the long run.

17. to make yourself better off
You must make
yourself worse off
in the short run,
to make yourself better off
in the long run.

19. The ship set ground on the shore of this uncharted desert isle
The ship set ground on the shore of this
uncharted desert isle

20. Here on.. With Gilligan, the Skipper too,
the millionaire and his wife..
Here on..
the movie star,
the professor &MaryAnn

21. Gilligan and the Skipper had to eat….
The 1st day, they spent 6 hours fishing

22. But, only caught one fish…
On the 2nd day, the Skipper went to fish again..

23. Gilligan decided to not eat
The 3rd day he was VERY hungry, but instead of eating he made nets from the vines…
Instead he collected vines

24. Gilligan decided to not eat
On the 4th day, nearly starving… he used his net
Instead he collected vines

25. He caught so many fish that he could spend more time doing other things…

26. http://www. riveroflifefarm

27. Capital
Goods
This is GOOD!
= economic growth
Consumption
Goods
If the PP shifts outward

28. Capital
Goods
This is BAD!!
= economic decline
Consumption
Goods
If the PP shifts inward

29. Capital Goods = Human made resources
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Capital Goods = Human made resources
used to produce goods and services
i.e. production tools, machines, equipment
Consumer Goods = goods intended for final
use by consumers rather than businesses
i.e. ipod, xbox, french fries, etc.

30. Consumer Goods = goods intended for final
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Consumer Goods = goods intended for final
use by consumers rather than businesses
i.e. ipod, xbox, french fries, etc.
Economic Growth
Economic Decline

31. Capital
Goods
Consumption
Goods
Lets start with the good…

32. Five Variables that Shift the PP Outward:
Increase the productive labor force
(# or productivity).
The parents of the baby boomers increased their future productive labor force by having a LOT of babies
New regulations/methods can increase employee productivity

33. Consumer Goods = goods intended for final
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Consumer Goods = goods intended for final
use by consumers rather than businesses
i.e. ipod, xbox, french fries, etc.
Economic Growth
Economic Decline

34. 5 Shifters - things that will move curve out
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Economic Growth
Economic Decline
5 Shifters - things that will move curve out
Increase the productive labor force
(# or productivity).

35. Five Variables that Shift the PP Outward:
Increase the productive labor force
(# or productivity).
Increase the quantity and quality of natural
resources.
A company could find a new mine, or get to a more pure vein…

36. 5 Shifters - things that will move curve out
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5 Shifters - things that will move curve out
Increase the productive labor force
(# or productivity).
Increase the quantity and/or quality of
natural resources.

37. Five Variables that Shift the PP Outward:
Increase the productive labor force
(# or productivity).
Increase the quantity and quality of natural
resources.
3. Increase the quantity and quality of capital.
A farming company could purchase more or better equipment

38. 5 Shifters - things that will move curve out
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5 Shifters - things that will move curve out
Increase the productive labor force
(# or productivity).
Increase the quantity and/or quality of
natural resources.
Increase the quantity and/or quality of
capital.

39. Five Variables that Shift the PP Outward:
Increase the productive labor force
(# or productivity).
Increase the quantity and quality of natural
resources.
3. Increase the quantity and quality of capital.
4. Increase health and education.

40. 5 Shifters - things that will move curve out
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5 Shifters - things that will move curve out
Increase the productive labor force
(# or productivity).
Increase the quantity and/or quality of
natural resources.
Increase the quantity and/or quality of
capital.
4. Increase health and education.

41. Five Variables that Shift the PP Outward:
Increase the productive labor force
(# or productivity).
Increase the quantity and quality of natural
resources.
3. Increase the quantity and quality of capital.
4. Increase health and education.
5. Increase technology.

42. 5 Shifters - things that will move curve out
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5 Shifters - things that will move curve out
Increase the productive labor force
(# or productivity).
Increase the quantity and/or quality of
natural resources.
Increase the quantity and/or quality of
capital.
4. Increase health and education.
5. Increase technology.

43. The opposite is also true…
Japan
1940

44. What do you think happened
to the quantity and quality of its
natural resources?
Capital
Japan 1945
Consumption

45. What do you think happened to
the quantity and quality of
its capital stock?
Capital
Japan 1945
Consumption

46. What do you think happened to its health and education? Capital
Japan 1945
Consumption

47. What do you think happened to
its technology?
Capital
Japan 1945
Consumption

48. What happened to Japan’s
Capital
Japan 1945
Consumption

49. Capital Goods Consumption Goods
Developed countries produce capital goods
Undeveloped countries produce consumption goods (i.e. food)
Consumption
Goods

50. http://www. ellsworthamerican

51. Capital
Goods
Ethiopia
Consumption
Goods
Produce
Consume
= Starve

52. Capital
Goods
Consumption
Goods
Ethiopia

53. Capital Goods Consumption Goods Ethiopia
We sent food and $ which just prolonged the problem.
Solution: send capital goods instead
Reality: we sent trackers, but forgot to send gas
Consumption
Goods
Ethiopia

54. Capital
Goods
Iraq
Oil
Consumption
Goods
Sand?

55. 5 Shifters - things that will move curve out
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5 Shifters - things that will move curve out
Increase the productive labor force
(# or productivity).
Increase the quantity and/or quality of
natural resources.
Increase the quantity and/or quality of
capital.
4. Increase health and education.
5. Increase technology.
A decrease in any would have opposite effect,
It would shift curve inward.

56. Guns
Military
Butter
Consumption goods

57. The Advantages

58. Write This Down
The Advantages

61. The Advantages Absolute Advantage Comparative Advantage
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The Advantages
Absolute Advantage
One entity can produce something
absolutely faster than or greater than another entity.
Comparative Advantage
One entity can produce something at a
LOWER MARGINAL OPPORTUNITY COST
than another entity.

62. Ireland Puerto Rico Crystal Rum Crystal Rum A B C 1 million 0
700,000 A
80,000 B
40,000 C C
30,000
100,000
Rum
40,000
80,000
Rum
Ireland
Puerto Rico
Crystal Rum
Crystal Rum A B C
1 million
700,000 30,000
,000 A B C
80,
40,000 40,000
0 80,000

63. ADDITIONAL W/ SPECIALIZATION & TRADE
Crystal
Crystal A
1 million B
700,000 A
80,000 B
40,000 C C
30,000
100,000
Rum
40,000
80,000
Rum
Ireland
Puerto Rico
IRELAND
ON THEIR OWN
ADDITIONAL W/ SPECIALIZATION & TRADE
PRODUCE
TRADE
CONSUME - =
-175,000
+35,000
825,000
35,000
700,000
30,000
+125,000
+5,000
1 Million Crystal
0 Rum
PUERTO RICO -
+175,000
-35,000
175,000
45,000
40,000 =
+135,000
+5,000
0 Crystal
80,000 Rum

64. ADDITIONAL W/ SPECIALIZATION & TRADE
175,000
Crystal
Crystal A
1 million D
825,000
700,000 A B
80,000
40,000 B
35,000 C
45,000 C
30,000
100,000
Rum
40,000
80,000
Rum
Ireland
w/ trade
Puerto Rico
IRELAND
ON THEIR OWN
ADDITIONAL W/ SPECIALIZATION & TRADE
PRODUCE
TRADE
CONSUME - =
-175,000
+35,000
825,000
35,000
700,000
30,000
+125,000
+5,000
1 Million Crystal
0 Rum
PUERTO RICO -
+175,000
-35,000
175,000
45,000
40,000 =
+135,000
+5,000
0 Crystal
80,000 Rum

65. D
175,000
Crystal
Crystal A
1 million D
825,000
700,000 A B
80,000
40,000 B
35,000 C
45,000 C
30,000
100,000
Rum
40,000
80,000
Rum
Ireland
Puerto Rico
Which country is obviously better off through this
specialization and trade?
Both Countries are!!!
Both countries are now outside their own production
capabilities. Through specialization and trade all
parties are better off.

66. The Advantages Absolute Advantage Comparative Advantage
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The Advantages
Absolute Advantage
One entity can produce something
absolutely faster than or greater than another entity.
Comparative Advantage
One entity can produce something at a
LOWER MARGINAL OPPORTUNITY COST
than another entity.
* CA is used to decide who should produce what

67. Lets discuss each part of the graph
Product 1
PP CURVE
Productively Efficient
ON THE CURVE =
CURVE =
Inefficient or underused resources
INSIDE THE
Product 2

68. = Not using all of your resources
Inside the Curve
= Not using all of your resources
Unemployment
Discrimination in hiring
- Gender (ex: women in 1950’s)
- Race
- Religion
Unused Capital or technology (ex: laws, restrictions, bans)

69. Lets discuss each part of the graph
Product 1
PP CURVE
Productively Efficient
ON THE CURVE =
OUTSIDE THE CURVE =
Unattainable, can’t PRODUCE. But, can CONSUME via Specialization & Trade
CURVE =
Inefficient or underused resources
INSIDE THE
Product 2

70. Add this PP Graph to your notes
Product 1
PP CURVE
Productively Efficient
ON THE CURVE =
OUTSIDE THE CURVE =
Unattainable, can’t PRODUCE. But, can CONSUME via Specialization & Trade
CURVE =
Inefficient or underused resources
INSIDE THE
Product 2