production possibilities frontier economics unit one: basic economic concepts

Production Possibilities FrontierEconomics Unit One: Basic Economic Concepts

Production Possibilities Curve

(Production Possibilities Curve and Production Possibilities Frontier are used interchangeably)

• Production Possibilities Curve is a graphic representation of all possible combinations of two goods that an economy can produce.• The line shows the maximum possible output

for a specific economy

EOC study guideBasic Economic

Concepts #3

links

smiles

Production Possibilities Frontier demonstrates

scarcity

• Production possibilities graphs show alternative ways to use an economy’s resources

• The axes display any pair of goods and services• Smiles and links• Computers and cars• Farm goods and factory goods• Military goods and consumer goods

links

smiles

PPF Illustrates Opportunity Costs and Marginal Thinking

• What is the opportunity cost of moving your production from Q to R?

• What is the opportunity cost of moving your production from T to V?

PPF Illustrates Efficiency

• Efficiency is the use of resources so as to maximize the production of goods and services. • Which point(s) shows this

economy working at its most efficient level of production?

• Which point(s) indicates an underutilization of resources?

• Which point(s) shows an unattainable level?

Most efficient

Underutilization of resources

Impossible!

PPF Illustrates Growth

• A production possibilities curve reflects the country’s current production possibilities

• What happens when the quantity of resources (factors of production) changes?• When more natural resources (land)

become available?

• When the working age population (labor) increases?

• When a new technology (physical capital) is invented?

PPF Can Shrink

• What happens when the quantity of resources (factors of production) decreases?• When more natural resources (land) are

destroyed?• Fire, earthquake, flood

• When the number of workers (labor) decreases?• Baby boomers retire, large numbers of illegal

immigrants shipped out of the country

• When a human capital decreases?• Large numbers of students don’t go to college

and don’t have the knowledge necessary to fill the previous generations shoes

What does it look like if Only one good’s output is increased?

• Let’s say a new machine is created that speeds up the time it takes to manufactures guns

• This new technology does NOT however effect the production of butter

• Now what happens to the frontier????