efficiency and tradeoffs in production the production possibilities curve

12
Efficiency and Tradeoffs in Production The Production Possibilities Curve

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Televisions Cars Production Possibilities Curve PPC

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Page 1: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Efficiency and Tradeoffs in Production

The Production Possibilities Curve

Page 2: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Graph the following:Televisions Cars

0 168 14

13 1016 618 219 0

Page 3: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Televisions

Cars

0

16

19

Production Possibilities Curve

PPC

Page 4: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Production Possibilities Curve

• A graphical representation of the trade-offs encountered when switching resources from producing one good to another in the presence of fixed resources

• The possible mixes of production at maximum efficiency

Page 5: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Televisions

Cars

0

16

19

Consider the following points:

PPC

A

C

D

B

A & B: Possible and Efficient

C: Possible, but InefficientD: Not Possible with given resources

Page 6: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Can the PPC Shift?

• What happens when there is an innovation that makes televisions faster (more efficient) to produce?

Page 7: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Televisions

Cars

0

16

19

Production Possibilities Curve

PPC1 PPC2

Sector-Specific Shift

Page 8: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Can the PPC Shift?

• What happens when labor productivity improves throughout the economy?

Page 9: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Televisions

Cars

0

16

19

Production Possibilities Curve

PPC1 PPC2

Economy-Wide Shift

Page 10: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Production Possibilities Curve

• Is there a relationship between the shape of the curve and the opportunity costs encountered in shifting production from ne good to another?

Page 11: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Figure 3.2 Increasing Opportunity CostRay and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers

Page 12: Efficiency and Tradeoffs in Production The Production Possibilities Curve

Increasing Opportunity Costs

• Why?

–Most efficient resources are first ones that are shifted over