Transcript Production Possibilities Curve

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Students will interpret a production
possibilities curve
Students will demonstrate how production
possibilities curves show efficiency, growth,
and cost
Students will understand that a country’s
production possibilities depend on its available
resources and technology
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As we learned earlier, scarcity means that
society’s capacity to produce is limited. This
condition is shown in a model called the
production possibilities curve (PPC) and it
illustrates the maximum possible output for an
economy
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This model has two assumptions:
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Fixed Resources – all resources remain unchanged.
There is no way (in this model) to increase land,
labor, or capital
Technology Unchanged – technology is assumed to
be fixed or unchanged. Technology is the body of
knowledge applied to how goods and services are
produced
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All points along the curve illustrate the
maximum output levels and are called
efficient points.
Efficiency is producing the maximum output
with given resources and technology
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If the economy does not use all its resources to
full capacity (workers unemployed, plants and
equipment not used to full capacity)
Economy fails to reach any of the efficient points
along the PPC
 All points inside of the curve indicate
underutilization of resources. Underutilization –
when an economy fails to fully use its resources
 Result is the economy produces less that maximum
output
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There is always a limit to the quantity of goods
and services an economy can produce
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Any point outside the PPC curve is impossible
It is considered unattainable output given its
existing resources and technology
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The concept of opportunity costs can also be
explained with a PPC graph
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Law of increasing opportunity cost
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Opportunity cost increases as production of an
output expands.
As more of an economy’s resources are devoted to
producing one product, even greater quantities of
production of the other product must be given up
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An economy’s production is not always fixed –
it doesn’t stay the same
There is sometime economic growth which is
the ability of an economy to produce greater
levels of output
When economic growth occurs the production
possibilities curve shifts outward
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Ways to increase output (Economic Growth
resulting in an outward shift of the curve)
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Change in Resources
 New factories
 Increasing number of workers
 Result of changes in resources – more of each output
can be produced
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Technological Change
 New knowledge, inventions, etc that makes an
economy more productive.
 Economy can produce more with the same resources
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Production Possibilities Curve - A curve that shows
alternative ways to use an economy's resources.
Production Possibilities Frontier - The line on a
production possibilities graph that shows the
maximum possible output for a specific economy
Efficiency Underutilization - Refers to the circumstance
in which a nation or producer does not use the
available resources in such a way as to maximize the
production of goods and/or services.
Cost - To an economist, cost is an alternative that is
given up as the result of a decision.
Law of Increasing Costs - Explains why the production
possibility frontier usually curves.
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Tradeoffs – in a production possibilities curve,
what is given up by making one choice versus
another
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Efficiency – are resources being used in the best
manner
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Underutilization – a society is not using all of the
resources they can
Growth – an increase in a country’s resources
Cost – what is given up when one thing is
chosen over another
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Law of increasing costs – explains why production
possibilities frontier curves
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Production possibilities of a country depends
on both resources and technology