1. Standard Address
12.1 Students understand common terms & concepts and economics reasoning.
CONTEMPORARY ECONOMICS: LESSON 2.2

2. LESSON 2.2 Production Possibilities Frontier
CONTEMPORARY ECONOMICS
4/25/2017
Objectives
LESSON 2.2 Production Possibilities Frontier
Describe the production possibilities frontier and explain its shape.
Explain what causes the production possibilities frontier to shift.
CONTEMPORARY ECONOMICS: LESSON 2.2
LESSON 2.2

3. LESSON 2.2 Production Possibilities Frontier
Key Terms
LESSON 2.2 Production Possibilities Frontier
production possibilities frontier (PPF)
efficiency
law of increasing opportunity cost
economic growth
CONTEMPORARY ECONOMICS: LESSON 2.2

4. What is efficiency?
CONTEMPORARY ECONOMICS: LESSON 2.2

5. Efficiency and Production Possibilities Frontier
Simplifying assumptions
PPF model
Inefficient and unattainable production
Shape of the PPF
CONTEMPORARY ECONOMICS: LESSON 2.2

6. Efficiency and Production Possibilities Frontier
CHECKPOINT: Page 45
Efficiency and Production Possibilities Frontier
Describe the PPF models, and explain its shape.
The PPF model shows the possible combination of the two types of goods that can be used when available resources are employed fully and efficiently.
The bow shape of the PPF curve reflects the law of increasing opportunity cost in that each additional increment of one good requires the economy to give up successively larger increments of the other good.
CONTEMPORARY ECONOMICS: LESSON 2.2

7. The Shape of the PPF NOTES
Efficiency –
Any movement along the PPF involves giving up some of one good to get more of another.
CONTEMPORARY ECONOMICS: LESSON 2.2

8. Production Possibilities Frontier
A through F are attainable
I represents inefficient use of resources
U represents unattainable combinations
CONTEMPORARY ECONOMICS: LESSON 2.2

9. The Shape of the PPF (Cont) NOTES
Law of increasing opportunity cost –
If the economy uses all resources efficiently then the law of increasing opportunity cost will apply.
CONTEMPORARY ECONOMICS: LESSON 2.2

10. CONTEMPORARY ECONOMICS: LESSON 2.2

11. Shifts in the PPF Changes in resource availability
Increases in stock of capital goods
Technological change
Lessons from the PPF
CONTEMPORARY ECONOMICS: LESSON 2.2

12. Shifts in the PPF Increase in available resources
Decrease in available resources
CONTEMPORARY ECONOMICS: LESSON 2.2

13. Changes in resource availability NOTES
If the labor force increases, such as through immigration, the PPF shifts outward.
An increase in the availability of other resources, such as new oil discoveries, also would shift the PPF outward.
CONTEMPORARY ECONOMICS: LESSON 2.2

14. Changes in resource availability (Cont) NOTES
The bowed-out shape of the PPF reflects the law of increasing opportunity cost.
CONTEMPORARY ECONOMICS: LESSON 2.2

15. What causes the production possibilities frontier to shift?
CHECKPOINT: Page 46
Shifts in the PPF
What causes the production possibilities frontier to shift?
The PPF may shift as a result of changes in resources availability or in technology.
CONTEMPORARY ECONOMICS: LESSON 2.2

16. Key Concepts: Page 47
1. Explain why each of the following assumptions is made when production possibilities frontier (PPF) is constructed.
a. Only two goods or services are considered.
a. It is difficult to graph more than two products at once.
CONTEMPORARY ECONOMICS: LESSON 2.2

17. Key Concepts: Page 47
1. Explain why each of the following assumptions is made when production possibilities frontier (PPF) is constructed.
b. The time considered is limited.
b. Different amounts of production may take place given the same resources in different periods of time.
CONTEMPORARY ECONOMICS: LESSON 2.2

18. Key Concepts: Page 47
1. Explain why each of the following assumptions is made when production possibilities frontier (PPF) is constructed.
c. The available resources are fixed in terms of quality and quantity.
c. Different amounts and quantities of resources will result in different amounts of production.
CONTEMPORARY ECONOMICS: LESSON 2.2

19. Key Concepts: Page 47
1. Explain why each of the following assumptions is made when production possibilities frontier (PPF) is constructed.
d. The available technology does not change in the time considered.
d. Different technologies can change efficiency of producing the product.
CONTEMPORARY ECONOMICS: LESSON 2.2

20. Key Concepts: Page 47
2. What does a production possibilities frontier for plastic tables and bowling balls indentify?
A PPF indentifies the possible combinations of plastic tables and bowling balls that can be produced when available resources are employed fully and efficiently.
CONTEMPORARY ECONOMICS: LESSON 2.2

21. Key Concepts: Page 47
3. What does it mean to say that firm produces bowling balls efficiently?
The firm is producing the maximum number of bowling balls possible from its available resources.
CONTEMPORARY ECONOMICS: LESSON 2.2

22. Key Concepts: Page 47
4. If a firm that produces bowling balls and plastic tables is operating inside its PPF, how efficiently is it using its resources?
Any point inside the PPF indicates inefficient production.
CONTEMPORARY ECONOMICS: LESSON 2.2

23. Key Concepts: Page 47
7. ABC Electronics Inc. can produce either cameras or DVD Players in its factory. The more it makes of one product, the less it is able make of the other.
Combination
Digital Cameras
DVD Players A
5,000 B
2,000
4,500 C
3,400 D E
CONTEMPORARY ECONOMICS: LESSON 2.2

24. 6000 5000 4000 3000 2000 1000 PPF Digital Camera DVD Players
5000
4000
3000
2000
1000
DVD Players
CONTEMPORARY ECONOMICS: LESSON 2.2

25. Key Concepts: Page 47
7. Why isn’t there a one-for-one trade-off between production of these two products.
The Law of increasing opportunities cost is based on the fact that not all resources are equally adaptable to all types of production.
CONTEMPORARY ECONOMICS: LESSON 2.2