Download Intro to Production Possibilities Curve File

3 Basic Questions a Society Must Face
Production Possibilities
• Production Possibilities curve – a diagram representing
various combinations of goods and/or services an
economy can produce when all productive resources are
fully employed.
•What is the opportunity cost of scoring a 75% on the calculus test?
The most famous PPC example
MILITARY
V.
CIVILIAN
A Two-Product Farmer’s Possible
PPF
• Why is the yellow area inefficient production?
• Why is the white area unattainable production?
• What would have to happen to move into the white area?
What are…
•CAPITAL
GOODS?
•CONSUMER
GOODS?
1
Lessons in Specialisation:
• It’s about efficiency, not quantity!
• Should Angola and Botswana produce both potatoes
and shoes?
What can we learn from the
PP Model?
The Production Possibility model provides
valuable lessons in:
• Opportunity Cost
• Specialisation
• Trade Theory
• Resource Utilisation & Efficiency
• Full Employment
Note: Opportunity Cost is usually
not limited to just 1 other option
From nationalpriorities.org -- the cost of the war in Iraq
> $600 billion spent
(Feb 2009)
Possible Opportunity Costs:
>90 million kids attending head start programs
>193 million people w/ health care for 1 year
>10.7 million additional teachers for 1 year
>5.1 million additional housing units
>101 million full 1 year university scholarships