1. © SOUTH-WESTERN  12.1 Students understand common terms & concepts and economics reasoning. Standard Address 1 2.2 - Objectives  Describe the production possibilities frontier and explain its shape.  Explain what causes the production possibilities frontier to shift.

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3. CONTEMPORARY ECONOMICS: LESSON 2.23 LESSON 2.2 Production Possibilities Frontier  production possibilities frontier (PPF)  efficiency  law of increasing opportunity cost  economic growth Key Terms

4. © SOUTH-WESTERN What is efficiency? CONTEMPORARY ECONOMICS: LESSON 2.24

5. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.25 Efficiency and Production Possibilities Frontier  Simplifying assumptions  Keep it simple (KISS) 1.Limit the model to 2 classes of products 2.Define the time 3.Fix quantity and quality 4.Technology does not change

6. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.26 Efficiency and Production Possibilities Frontier  PPF model  Shows the possible combinations of two types goods that can be produced when available resources are used fully and efficiently.  Efficiency – Producing the maximum possible output from available resources

7. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.27 Efficiency and Production Possibilities Frontier  Inefficient and unattainable production  U = Unattainable  I = Inefficient  A, B, C, D, E, F = EFFICIENT

8. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.28 Production Possibilities Frontier  A through F are attainable  I represents inefficient use of resources  U represents unattainable combinations

9. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.29 Efficiency and Production Possibilities Frontier  Shape of the PPF  Curved  Any movement along the PPF involves giving up some of one good to get more of another.

10. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.210 Efficiency and Production Possibilities Frontier  Shape of the PPF  If the economy uses all resources efficiently, the law of increasing opportunity cost will apply.

11. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.211 Efficiency and Production Possibilities Frontier  Shape of the PPF  Law of Increasing opportunity cost – Each additional increment of one good requires the economy to give up successively larger increments of the other good.

12. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.212

13. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.213 Describe the PPF models, and explain its shape. CHECKPOINT: Page 45 Efficiency and Production Possibilities Frontier 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.

14. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.214 Shifts in the PPF  The PPF may shift if as a result in changes of resources or technology  Economic growth - An expansion of the economy’s production possibilities or abilities to produce Increase in available resources

15. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.215 Shifts in the PPF  Changes in resource availability  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. Increase in available resources

16. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.216 Shifts in the PPF  Increases in stock of capital goods  The more capital goods an economy produces during one period, the more output it can produce in the next production period.

17. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.217 Shifts in the PPF  Technological change  An increase in technology will shift the PPF outward.

18. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.218 Shifts in the PPF  Lessons from the PPF  The bowed-out shape of the PPF reflects the law of increasing opportunity cost.

19. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.219 Shifts in the PPF Increase in available resourcesDecrease in available resources

20. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.220 What causes the production possibilities frontier to shift? CHECKPOINT: Page 46 Shifts in the PPF The PPF may shift as a result of changes in resources availability or in technology.

21. © SOUTH-WESTERN 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. CONTEMPORARY ECONOMICS: LESSON 2.221 Combination Digital Cameras DVD Players A05,000 B2,0004,500 C3,400 D4,5002,000 E5,0000

22. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.222 PPF Digital Camera 6000 5000 4000 3000 2000 1000 20003000400050006000 DVD Players

23. © SOUTH-WESTERN Key Concepts: Page 47 7. Why isn’t there a one-for-one trade-off between production of these two products. CONTEMPORARY ECONOMICS: LESSON 2.223 The Law of increasing opportunities cost is based on the fact that not all resources are equally adaptable to all types of production.