WHAT IS ECONOMICS?

Section 3: Production

Possibilities Curves

SOME BASIC VOCABULARY

Curve = graph

Schedule = chart

Why? Because they like to sound smart!

PRODUCTION PROBABILITIES

Production Probabilities Curve

It looks like a graph (remember: curve = graph)

Various ways a producer can use Land Labor Capital

Products

Capital

LandLabor

PRODUCTION PROBABILITIES

Production Possibilities CurveShows what the MAXIMUM production

could be!Axes

Shows goods and/or Shows services

PRODUCTION POSSIBILITIES CURVE

0 50 100 150 200 2500

20

40

60

80

100

120

140

160

180

200

Xs made

Os

made

Think about it:

Why do you think it’s called a frontier?

FRONTIER

PRODUCTION POSSIBILITIES FRONTIER

It’s found at the outer edge of a production possibilities curve

Represents the FURTHEST you can go out to regarding productionUsing all of your CURRENT resourcesUsing all of them at 100% capacity It curves down to show trade-offs

in increments = (margins) along the way

It’s about RIGHT HERE and RIGHT NOW

PRODUCTION POSSIBILITIES FRONTIER

Efficiency – using ALL of your resources to reach MAXIMUM production

Underutilization – NOT using ALL of your resources to reach MAXIMUM production

PRODUCTION POSSIBILITIES FRONTIER

Moving the boundary (frontier) Growth

Increase in available natural resources (land) Increase in population (labor) Breakthrough in technology (capital) Shifts the curve to the right

PRODUCTION POSSIBILITIES FRONTIER

Moving the boundary (frontier) Contraction

Decrease in available natural resources (land) Decrease in population (labor) Break down in technology (capital) Shifts the curve to the left

EXACTLY THE OPPOSITE OF GROWTH

LAW OF INCREASING COSTS

The more resources you move into one product the more it costs you

Why?Some areas are better suited to

produce certain goodsForcing new (but worse) areas to

do this doesn’t pay off as much!

LAW OF INCREASING COSTS

THINK ABOUT IT Complete the writing prompt at the end

of your packet … you might need to use the back of the page!