efficiency and tradeoffs in production the production possibilities curve
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Televisions Cars Production Possibilities Curve PPCTRANSCRIPT
Efficiency and Tradeoffs in Production
The Production Possibilities Curve
Graph the following:Televisions Cars
0 168 14
13 1016 618 219 0
Televisions
Cars
0
16
19
Production Possibilities Curve
PPC
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
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
Can the PPC Shift?
• What happens when there is an innovation that makes televisions faster (more efficient) to produce?
Televisions
Cars
0
16
19
Production Possibilities Curve
PPC1 PPC2
Sector-Specific Shift
Can the PPC Shift?
• What happens when labor productivity improves throughout the economy?
Televisions
Cars
0
16
19
Production Possibilities Curve
PPC1 PPC2
Economy-Wide Shift
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?
Figure 3.2 Increasing Opportunity CostRay and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers
Increasing Opportunity Costs
• Why?
–Most efficient resources are first ones that are shifted over