Download Production Possibilities Curve

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• Imagine you and two friends are planning
a party for the class…
• Plan who will do what to prepare for the
party…
Production Possibilities Curve
Warning: Curves ahead!!
Economists use graphs
to analyze the choices
and trade-offs that
people make
- graphs help us
see how one value
relates to another value
Production Possibilities
Curve: a graph that
shows alternative ways
to use an economy’s
resources
• Production Possibilities
Frontier: a line on the
production possibilities
curve that shows the
maximum possible output
an economy can produce
– Shows the possible
combinations of the
production multiple
products
• Remember – all resources
are scarce. A production
possibilities curve helps
show the best way to
allocate (divide) these
scarce resources
Efficiency, Growth & Cost
• Efficiency: the use of resources to
maximize the output of goods and services
• Underutilization: the use of fewer resources
than an economy is capable of using
– any point inside the production possibilities frontier indicates
underutilization
H
GROWT
• A production possibilities curve is like a
snapshot – it shows current production
possibilities of a country’s resources at
one moment in time
• If the quantity or quality of a land, labor, or
capital changes, then the curve will move
To the right, to the right, to the
right, to the right…..
• When an
economy grows,
economists say
that the
production
possibilities
curve has
“shifted to the
right”
To the left, to the left, to the left,
to the left
• When a country’s production ability decreases,
the curve shifts to the left
– Ex: when a country loses land as a result of war
Cost – it’s not always about $$
• Law of increasing costs: as production shifts
from making one item to another, more and
more resources are necessary to increase
production of the second item
– Opportunity cost increases
• Technology is one of the factors that can
increase a nation’s efficiency, therefore
governments spend $$$ investing in new
technology…
• For the same reason, they may also invest in
education and training so that its people can
develop and use new technologies…
• Highly skilled workers can increase efficiency
and lead to economic growth…