Transcript Aim: How do economists illustrate economic choice?

Aim: How do
economists illustrate
economic choice?
“We must choose between
guns and butter” – Adolf Hitler
“It turns out that what seems
to be true for individuals is
not always true for society as
a whole.”
What does the PPF illustrate?
• constrained choice
• opportunity cost
• scarcity
Production Possibilities Curve
• curve represents full and efficient
use of resources represented in the
curve
• inside the curve – inefficient use of
resources
• outside the curve – unattainable burnout
Shift of Curve
• introduction of new resources
• introduction of new technology
A
B
C
Production
Savings for
Combination Clothes College
1
$0
$ 100
2
25
75
3
40
60
4
60
40
5
75
25
6
100
0
(1)Plot curve
(2)What is the most amount that can be
saved for college?
(3)What would you to give up in order
save that much?
(4)What do you think the optimal choice
is? Explain.
(5)What could be done to adjust this
curve?
The United States Congress must
approve the federal budget. This
involves many difficult choices. For
example, the Congress can decide to
spend money on national defense, health
insurance programs, roads and
highways, education, and many other
worthwhile causes. Curve B illustrates a
hypothetical trade-off between spending
for defense and highways.
(1)What is the opportunity cost of one
aircraft carrier?
(2)What is the opportunity cost of 300
miles of highway?
(3)What other information would you
need to decide on the best combination
of defense spending and highway
construction?