Download Production Possibilities Curve

Warm-Up
• You want to start a
business.
• What good or service
would you provide. (Keep it
to something you can
discuss with Grandma)
• How would you produce it?
• How would you determine
who would need it?
Learning Goal Today
What is a production possibility
curve?
Production Possibilities Curve
Production Possibility Curve
• A curve showing the rates of two goods or
services an economy can produce efficiently in
a given period of time.
How it Works
What Happens with A Country
Curves Can Shift Right or Left
An outward shift of the frontier might be due to:
• more training of employees, enabling them to be more
productive;
• greater investment in capital goods such as machines and
equipment—in the short run
this would mean that resources would have to be shifted from
consumption goods
toward capital goods, and in the long run greater investment would
enable the economy
to produce more products for consumption;
• an increase in the population size, for example, through
immigration;
• improvements in technology providing better ways of doing
things.
Shift Inward:
• Change if factors of production
– Natural Disaster
– Labor Shortage
– Resources Scarce
– Expensive
Comparative Advantage
• Concept in economics that a country should
specialize in producing and exporting only
those goods and services which it can produce
more efficiently (at lower opportunity cost)
than other goods and services (which it should
import).
Absolute Advantage
• Entities with absolute advantages can produce
something using a smaller number of inputs
than another party producing the same
product
Answering The Basic Economic
Questions
• What to produce?
• How to produce it?
• For whom to produce it
for?
What To Produce
• Basic Needs- Food, Clothing, Shelter
• Wants (Luxury Items)
• Services- Education, Health Care, Public Safety
How to Produce It
• Size, Organization, and Facilities
• Resources
• Time and Effort
Who?
• Choices
• Value
• Access to goods or service
Economic Systems
• Each Economic System Answers the Basic
Economic Questions:
– What to Produce
– How to Produce it
– To whom to Produce it For
Types of Economic Systems
•
•
•
•
Traditional
Command
Market
Mixed
Traditional
• Local
• Handed down from parent to child
• Example: Fishing
Command
• Government controls/owns all factors of
production and answers all economic
questions.
• Government decides who will make and what
is made
• Example: North Korea
Market System
• Consumer answers the economic questions by
purchasing goods or services they want or
need.
• Example: United States
Mixed System
• The government has some control over the
resources.
• They may own the utilities or natural
resources or regulate what may be produced.
• Example: England and Sweden