Download What is this?

•The Production
Possibility Curve
What is this?
Production Possibility Curve
• The PPC is a curve which shows the
maximum level of output for an economy.
All resources are being used efficiently
and there is no unemployment.
• Opportunity Cost
• When making a decision between
competing choices, the opportunity cost is
the benefit lost from the next best
alternative.
Lawyer taking his dog for a walk
Dominican Republic
• The Dominican
Republic has two
main industries –
tourism and
agriculture.
PPC in the Dominican Republic
• The opportunity cost of investing in
agriculture is investing in tourism and vice
versa.
• But, the opportunity cost does not remain
constant.
• But opportunity costs do not remain
constant.
Switzerland
Switzerland
• Banking
• The opportunity cost
of investing in
banking is cheese
making.
• Cheese making
• The opportunity cost
of investing in cheese
making is banking.
Bankers and Cheesemakers
You will notice….
• As more and more bankers and banks are
converted to cheese production, the
opportunity cost increases.
Why?
• As we convert more and more
cheesemakers to bankers, less and less
suitable Land, Labour, Capital and
Enterprise are now involved in banking.
There is a very high opportunity cost when
a very productive cheesemaker becomes
an average banker.
• That is why PPC curves are bow shaped.
PPC with a constant OC.
• If the two goods or services are very
similar, then that the OC would remain
constant.
• If the LLCE are good at making pizzas, we
can reasonable assume that these same
LLCE will be good at making calzones.
Production Possibility Curve
• Distinguish between an inward shift in a
PPC and operating inside the PPC. (4)
• Draw a PPC showing organic carrots and
I-phone apps. (2)
• Show how the Opportunity Cost varies at
different points on the curve. (4)
Production Possibility Curve
• The percentage of people attending
university after school increases in a given
country from 25% to 45%. Assess the
impact on the production possibility curve
of this development. (10)
Shifts in your PPC.
• What type of things are likely to help boost
the productive potential of your economy?
1. Immigration.
• Immigrants bring skills and education.
• Immigrants are also willing to work for pay
and conditions which native born people
will not do.
Swiss national football team if
children of foreigners were
excluded.
2. Better standards of training
and education.
Where are the top 100
universities?
• 3. A tax system which encourages work
and enterprise.
•
• 4. The discovery of new resources.
• Italian firm discovers huge gas field off
Egyptian coast
What’s this country?
What can shift the PPC
inwards?
Brain drain –
• Ethiopia produces a large number of
qualified professionals, especially in the
medical field, but is experiencing one of
the worst brain drains of any country in the
world. A recent study revealed some
shocking numbers, with the country losing
about 75% of its skilled professionals over
the past ten years.
• The depletion of natural resources.
War
• In 2012, Libya’s GDP fell by 52% in one
year.