1. Power Point #4 Production Possibilities Curve
What to produce...in what amount?

2. Essential Question
Explain the Production Possibilities Curve Froniter

3. Introduction
The Production Possibilities Frontier (PPF) is a graph that shows all possible combinations of two goods when an economy is producing at full potential.
It does not actually show reality, since it assumes only two goods are produced.
It is a simplification that shows what sort of trade-offs would be made in reality.
It only shows what can be produced – not what would be consumed.

4. When you go to the store with $20, do you say to yourself (as you are decided how much you can afford to buy): y+ 3x =20

5. What Goods to Produce?
Economists look at this question and create what is known as the Production Possibility Curve or Frontier

6. Production Possibilities Curve
Peanuts
At this Point What is Being
Produced in Greater Quantity?
How many Oranges are being produced at this point?
Why does the Production of these two products follow a curve?
It is bowed out to denote increasing costs
Representation of production at its most efficient
Important to realize that production can also take place anywhere within the curve.
Oranges

7. What do you need for production to be at its most efficient to allow for the optimal the Production Possibilities Curve?

8. Factors of Production (Scarce Resources)
Slide from Power Point #2
Factors of Production (Scarce Resources)
Land - natural resources of “gifts of nature”
Labor - physical and mental talents of workers
Capital - tools, machinery, manufactured goods used to produce consumer goods
Investment
Entrepreneurial Ability - the idea or “sparkplug”, innovation, risk

9. Scarce Resources Defined
Slide from PowerPoint #1
Scarce Resources Defined
Since all resources are limited we are forced to make economic choices – how to use our resources to accomplish “maximum satisfaction”.
The Economizing Problem
Opportunity Cost

10. Production Possibilities Curve
Why would the curve shift inward?
Peanuts
Problems with Labor
Loss of Land Resources
Machinery Breaks Down
When the economy/business
uses less resources than the
economy is capable of using it experiences…
UNDERUTILIZATION
Oranges

11. Opportunity Cost (PPT#1)
Definition:
the loss of potential gain from other alternatives when one alternative is chosen.
What was the example given in PowerPoint #3 that is the common example used?

12. The Guns versus Butter model
This is an example of Opportunity Cost
A nation chooses between a nation's investment in defense and civilian goods.
In this example, a nation has to choose between two options when spending its Scarce Resources.
Example: WWII – Total War, all resources were needed, many resources on the “butter” side were rationed for “guns” or what was needed for the military

13. Production Possibilities Curve
Why would the curve shift outward?
Peanuts
Increase in the Amount or Quality of Resources
More Labor (Population)
Increased Productivity from Labor
New or Better Resources
New or Better Capital
Better Education or Health of Labor
Technological Advancement
Future Production
Possibilities Frontier
Oranges

14. After WWII Example Economic boom
Increase in the Amount or Quality of Resources
More Labor (Population)
Increased Productivity from Labor
New or Better Resources
New or Better Capital
Better Education or Health of Labor
Technological Advancement