production possibility frontier bethany.ppt
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Warm up question:Tell me about a choice that you made yesterday. What was the opportunity cost of that choice?
Unit 1:Production Possibility
Frontier (PPF)
Scarcity, Choice and Opportunity Cost: All in One Visual!
Production Possibility Frontier (PPF)
• A graphic representation of all possible combinations of two goods that an economy can produce.
• By analyzing a PPF you can determine the opportunity cost of choice and see the existence of scarcity.
• You can also determine what effect resources and technology have on production possibilities.
The economy can efficiently produce any of these combinations of
snowboards and skis.
Scarcity and the PPF
Things on the curve (A-D) are available.
The curve shows efficient use of resources.
What we can’t have- what is unavailable to us because we don’t have enough resources to produce it- is anything beyond the PPF (F)
Beyond the curve is unattainable.
● That’s how the PPF shows us scarcity.
● We can also underutilize our resources (E)● Below the curve shows
inefficient use of resources.
Opportunity Cost and the PPF
● We know we can’t produce points A-D at the same time. We must make a choice.
● Once we make a choice, opportunity cost “pops up.”● If we narrow our choices
to B and C, and choose C.
● We increase production of skis by 20,000
● What is the opportunity cost of 20,000 more skis?
● The opportunity cost of 20,000 more skis is 15,000 snowboards
Another Example● Computers and Cars
Figure 2 The Production Possibilities Frontier
Copyright©2003 Southwestern/Thomson Learning
Productionpossibilitiesfrontier
A
B
C
Quantity ofCars Produced
2,200
600
1,000
3000 700
2,000
3,000
1,000
Quantity ofComputers
Produced
D
What is the opportunity cost of increasing cars by 100?
Shifts in the Curve● The location of the PPF for an economy is
determined mostly by the amount of resources available and the level of technology in society.
● If more resources become available or the level of technology increases, more goods and services can be produced and the PPF will shift to the RIGHT.
● If the amount of resources diminishes, if there is less, the economy can no longer produces at previous levels and the PPF will shift to the LEFT.
Figure 2 The Production Possibilities Frontier
Copyright©2003 Southwestern/Thomson Learning
Productionpossibilitiesfrontier
A
B
C
Quantity ofCars Produced
2,200
600
1,000
3000 700
2,000
3,000
1,000
Quantity ofComputers
Produced
D
What would happen if new computer
technology was released?
Figure 3 A Shift in the Production Possibilities Frontier
Copyright © 2004 South-Western
E
Quantity ofCars Produced
2,000
700
2,100
7500
4,000
3,000
1,000
Quantity ofComputers
Produced
A
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