1. Scarcity, Opportunity Cost, and the PPC
AP Micro
Stater

2. But first…
A quick look at graphing

3. Direct (positive) relationship
Two variables change in the same direction
When graphed, the line slopes upward
Positive slope

4. Inverse (negative) relationship
Two variables change in opposite directions
When graphed, the line slopes downward
Negative slope

6. Examples
If the price of tickets increases for the next chamber music recital, will more or fewer students attend?
If you work a longer shift at Tinseltown, will you drink more or less coffee?

7. Review of slope Slope = (change in Y) / (change in X)
Triangle means “change in”
Straight line = constant slope
Curved line = varying slope

8. Unlimited wants
While individuals can be satisfied for a time (after eating that cheeseburger)…
…the collective wants (and needs) of all members of society are UNLIMITED!

9. Scarce resources
The resources available for production of goods & services are LIMITED
The factors of production include:
Land
Capital (not $)
Labor
Entrepreneurial Ability

11. Production Possibilities Table
Let’s assume…
Production Possibilities Table
Time: One Hour
You are a hunter gatherer, and your skills include hunting rabbits and picking berries.
You have to choose how to split up your time on these two tasks.
Rabbits
Berries
300 1
280 2
240 3
180 4
100 5

12. Calculating Opportunity Cost
OC = What is sacrificed
Measures the amount of a good that has to be sacrificed to gain more of the other good
Rabbits
Berries OC
(marginal)
300
--- 1
280 20 2
240 40 3
180 60 4
100 80 5

13. Production Possibilities Curve (a. k. a
Production Possibilities Curve (a.k.a. Production Possibilities Frontier)
Moving from one point to the next on the curve demonstrates opportunity cost.
Some amount of one thing must be sacrificed to gain some amount of the other thing. It works in both directions.
Even using all available resources, we can’t have more of both things, so we make a CHOICE.

14. Calculating Per-Unit Opportunity Cost
Formula:
Opportunity cost of one more of good A =
good B / good A
In other words, per-unit opportunity cost is what you’ve lost divided by what you’ve gained

15. Law of Increasing Opportunity Costs
As you continue to gain one more of one good, the amount you sacrifice of the second good grows greater
This is because some resources are better at producing one good than another
When resources are forced to work in an industry or on a task where they are not proficient, they are less productive (see p.27)

16. How to analyze the PPC Point on the curve (productive efficiency):
Efficient economy
All resources are fully utilized
Point inside (below) the curve:
Not using all resources or using them inefficiently
Point outside (above) the curve:
Unattainable, for now

17. The curve CAN shift entirely https://www. youtube. com/watch
Shift up/outward from economic growth:
New or better resources
Education
Population growth
Better tech
Capital investment
Shift down/inward from loss of resources:
War
Disease
Natural disaster