AP Economics

Mr. Bernstein

Module 3: The Production Possibilities Curve

September 11, 2014

2

AP EconomicsMr. Bernstein

The Production Possibilities Curve Model• A very simple model can explain a lot• Highlights the importance of trade-offs in economic

analysis• Helps us understand efficiency, opportunity cost, and

economic growth• There are two sources of economic growth -

increases in the availability of resources and improvements in technology

3

The Production Possibilities Curve

AP EconomicsMr. Bernstein

4

The Production Possibilities Curve• Simplifying Assumptions– Resources and Technology are Fixed at a point in

time– Economy produces only two goods

• Off the curve is Not Feasible or Feasible but inefficient

• On the curve is feasible and efficient

AP EconomicsMr. Bernstein

5

The Production Possibilities Curve• A linear PPC means Opportunity Costs are

constant• Example: Pizzas vs Bulldozers. At every level

of production, the tradeoff in # of pizzas per bulldozer is the same

• But not all pizzas and not all bulldozers are created at the same cost. Why?

AP EconomicsMr. Bernstein

6

The Production Possibilities Curve• Concave due to “Law of increasing opportunity costs”

AP EconomicsMr. Bernstein

7

Economic Growth• Expansion of an economy’s production possibilities

AP EconomicsMr. Bernstein