1. SSEF2a: Illustrate by means of a production possibilities curve the trade-offs between two options.

2. Production Possibilities Curve
A graph that show alternative ways to use an economy’s resources
Axes can show categories of goods and services
Guns and Butter
Factory goods and Farm goods
Can also display any pair of specific goods or services
Hats on one axis
Shoes on the other

3. Drawing a Production Possibilities Curve
First decide what goods or services are to be examined
Graph A Graph B 25 20 15 10 5 25 20 15 10 5
No Butter , all possible Guns
Guns
Guns
No Guns, all possible Butter
Butter
Butter

4. KT’s Country
Graph A indicates that they could produce 15 Million Guns if it used all of its resources to produce Guns
Graph b indicates that they could produce 20 million Tons of butter
So KT’s country can produce a maximum of:
15 Million Guns Or
20 Million Tons of Butter

5. Third Choice
The citizens of Kt’s Country could produce both Guns and Butter
The Graph below show six different ways that KTlanders could use their resources to produce Guns and Butter. 25 20 15 10 5
The Line is called the Production Possibilities frontier.
Any spot on that line represents a point at which Kt’ Country is using all of its resources to produce a maximum combination of those two products
Guns
Butter

6. Trade-Off
Near the top (points a and b) Gun factories produce more Guns, but farmers produce fewer tons of Butter
As you go down the line, farmers are producing more butter, but less guns are being manufactured
Why?
Because LAND, LABOR, and CAPITAL are scarce
Using the factors of production to make more product means that fewer resources are left to make something else 25 20 15 10 5 25 20 15 10 5 25 20 15 10 5 a b c
Guns d e f
Butter

7. Efficiency, Growth, and Cost
Production possibilities graphs can show
How efficient an economy is
Whether an economy has grown or shrunk
The opportunity cost of a decision to produce more of one good or service

8. Efficiency
Efficiency means using resources in such a way as to maximize the production or output of a good or service.
Sometimes economies operate inefficiently
Example:
What would happen if some farmers and factory workers were laid off?
The farms and factories would produce fewer goods. This trade off is represented by drawing a point INSIDE the Production Possibilities frontier 25 20 15 10 5 25 20 15 10 5 25 20 15 10 5 a
Guns b c d e f
Butter

9. Growth
A production possibilities curve reflects the country’s current production possibilities as if the country’s resources were frozen in time.
But in the real world countries are constantly changing
If the quantity or quality of available land, labor, or capital changes, then the curve will move

10. New inventions can allow workers to produce more goods at lower costs.
Example:
If immigrants pour into this country, then more labor becomes available. The maximum amount of goods that the nation can produce increases
New inventions can allow workers to produce more goods at lower costs. 25 20 15 10 5 25 20 15 10 5 25 20 15 10 5 a b c
Guns d e f
Butter

11. Cost
Cost is the alternative we give up when we choose one option over the other
The cost of moving from producing no Butter to producing 8 million tons of butter is 1 million pairs of Guns 25 20 15 10 5
0,15
Guns
8,14
14,12
18,9
20,5
If we decided to produce 14 million tons of butter (an increase of only 6 million) it costs 2 million pairs of Guns
Butter