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Do Now • 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…