Production possibility frontier bethany.ppt
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Transcript of 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?
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Unit 1:Production Possibility
Frontier (PPF)
Scarcity, Choice and Opportunity Cost: All in One Visual!
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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.
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The economy can efficiently produce any of these combinations of
snowboards and skis.
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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.
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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
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Another Example● Computers and Cars
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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?
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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.
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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?
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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