ap micro 1-4 production possibilities curve

8/13/2019 AP Micro 1-4 Production Possibilities Curve

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Unit 1: Basic

Economic Concepts

1


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REVIEW1. Explain relationship between scarcity and choices

2. Differentiate between positive & normative

3. Differentiate between price and cost

4. Give the equation for profit

5. Differentiate between consumer and capital goods6. Give examples of each of the 4 Factors of

Production

7. Define tradeoffs

8. Define opportunity cost

9. Differentiate between accounting costs and

economic costs

10.Name 10 different teachers at SPHS? 2


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Society has unlimited wants but unlimited resources

The Economizing Problem

Scarcity

WE HAVE A PROBLEM!!

3


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The Production

Possibilities Curve

(PPC)Using Economic ModelsStep 1: Explain concept in words

Step 2: Use numbers as examplesStep 3: Generate graphs from numbers

Step 4: Make generalizations using graph

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What is the Production Possibilities Curve?

A production possibilities graph (PPG) is a

model that shows alternative ways that aneconomy can use its scarce resources

This model graphically demonstrates scarcity,trade-offs, opportunity costs, and efficiency.

4 Key Assumptions

Only two goods can be produced

Full employment of resources Fixed Resources (Ceter is Par ibus)

Fixed Technology5


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A B C D E f

14 12 9 5 0 0

0 2 4 6 8 10

Bikes

Computers

NOW GRAPH IT: Put bikes on y-axis and

computers on x-axis

Production Possibilities Table

Each point represents a specificcombination of goods that can be

produced given full employment of

resources.

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Bikes

Computers

14

12

10

8

6

4

2

0

0 2 4 6 8 10

A

B

C

D

E

G

Inefficient/Unemployment

Impossible/Unattainable(given current resources)

Efficient

Production PossibilitiesHow does the PPG graphically demonstrates scarcity,

trade-offs, opportunity costs, and efficiency?

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2 Bikes

2.The oppor tun i ty c ost of

moving from b to d is


moving from f to c is


moving from d to b is

7 Bik es

4 Compu ter

0 Compu ters

5.What can you s ay about po int G?

Unattainable

1. The oppor tun i ty c ost o f

moving from a to b is

Example:

Opportunity Cost

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The Production Possibilities

Curve (or Frontier)

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PIZZA 0 1 2 3 4CALZONES 4 3 2 1 0

List the Opportunity Cost of moving from a-b,

b-c, c-d, and d-e. Constant Opportunity Cost- Resources are

easily adaptable for producing either good.

Result is a straight line PPC (not common)

Production Possibilities

A B C D E

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PIZZA 20 19 16 10 0

ROBOTS 0 1 2 3 4

List the Opportunity Cost of moving from a-b,

b-c, c-d, and d-e.

Law of Increasing Opportunity Cost- As you produce more of any good, the

opportunity cost (forgone production of

another good) will increase. Why? Resources are NOT easily adaptable

to producing both goods.

Result is a bowed out (Concave) PPC

A B C D EProduction Possibilities


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Constant vs. Increasing

Opportunity Cost

Corn

Wheat

Cactus

Pineapples

Identify which product would have a straight linePPC and which would be bowed out?


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1 Bike

2.The PER UNIT opportu nity

cost of moving from b to c is


cost of moving from d to e is


cost of moving from c to d is

1.5 (3/2) Bik es

2 Bik es

2.5 (5/2) Bik es

= Opportunity Cost

Units Gained

1. The PER UNIT opportun i ty co st

of moving from a to b is

Example:

PER UNIT Opportunity CostHow much each marginal

unit costs

NOTICE: Inc reasing Opportu nity Cos ts 13


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The Production PossibilitiesCurve and Efficiency

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Productive Efficiency-

Products are being produced in the

least costly way.

This is any point ON the Production

Possibilities Curve

Allocative Efficiency-

The products being produced are theones most desired by society.

This optimalpoint on the PPC depends

on the desires of society.

Two Types of Efficiency

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Productive and Allocative Efficiency

Bikes

Computers

14

12

10

8

6

4

2

0

0 2 4 6 8 10

A

B

C

D

F

E

Which points are productively efficient?

Which are allocatively efficient?

G

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Productively Efficientcombinations are A through D

Allocative Efficientcombinations depend on

the wants of society(What if this represents a

country with no electricity?)


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Why two types of efficiency?

Size 20 running

shoes

Size 10 running shoes

A

Is combination A efficient?

Yes and No. It is productively efficient but it is not thecombination society wants


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Shifting the ProductionPossibilities Curve

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4 Key Assumptions Revisited

Only two goods can be produced

Full employment of resources

Fixed Resources (4 Factors)

Fixed Technology

What if there is a change?

3 Shifters of the PPC1. Change in resource quantity or quality

2. Change in Technology

3. Change in Trade 19



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Robo

ts

Pizzas

What happens if

there is an increase

in population?

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Robo

ts

Pizzas

What happens if

there is an increase

in population?

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Robo

ts

Pizzas

What if there is atechnology improvement

in pizza ovens

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Robo

ts

Pizzas

What if there is atechnology improvement

in pizza ovens

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PanamaFavors

Consumer Goods

MexicoFavors

Capital Goods

Consumer goods

Ca

pitalGoods

Current

PPC

Future

PPC

Consumer goodsCapitalGoods

FuturePPC

Current

PPC

Capital Goods and Future Growth

MexicoPanama24

Countries that produce more capital goods will have

more growth in the future.


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PPC PracticeDraw a PPC showing changes for each of the

following:

Pizza and Robots (3)

1. New robot making technology

2. Decrease in the demand for pizza

3. Mad cow disease kills 85% of cows

Consumer goods and Capital Goods (4)

4. Destruction of power plants leads to severe

electricity shortage5. Faster computer hardware

6. Many workers unemployed

7. Significant increases in education25

Q i #1


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New robot making technology

Q

Q

Robots

Pizzas

Question #1

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A shift only for Robots

Q i #2


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Decrease in the demand for pizza

Q

Q

Robots

Pizzas

Question #2

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The curve doesnt shift!

A change in demand

doesnt shift the curve

Q i #3


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Mad cow disease kills 85% of cows

Q

Q

Robots

Pizzas

Question #3

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A shift inward only for

Pizza

Q i #4


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BP Oil Spill in the Gulf

Q

QCapitalGoods

(Guns)

Consumer Goods (Butter)

Question #4

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Decrease in resources

decrease production

possibilities for both

Q ti #5


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Faster computer hardware

Q

QCapitalGoods

(Guns)


Question #5

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Quality of a resourceimproves shifting the

curve outward

Q ti #6


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Many workers unemployed

Q

QCapitalGoods

(Guns)


Question #6

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The curve doesnt shift!

Unemployment is just a

point inside the curve

Q ti #7


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Significant increases in education

Q

QCapitalGoods

(Guns)


Question #7

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The quality of labor is

improved. Curve shifts

outward.


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Paul Solman Video


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ap micro 1-4 production possibilities curve

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