Production Possibilities Curve

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Production Possibilities Curve
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Law of Increasing Costs

• This imaginary society produces only 2 items hot
  dogs and bicycles. The table shows that a certain
  amount of bicycles can be manufactured when a
  certain amount of hot dogs are manufactured, and
  no more of either can be produced.

Hot Dogs Bicycles
100 90 75 50 0 0 4 8 12 16
What is the opportunity cost, in terms of hot dogs, for moving from producing 8 bicycles to producing 12 bicycles?
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Production Possibilities

• A production possibilities graph shows
  alternative ways that an economy can use its
  resources.
• The production possibilities frontier is the line
  that shows the maximum possible output for that
  economy.

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• Production Possibilities Curve illustrates
  trade-offs and opportunity costs .
• 2 assumptions
• the amount of available resources and technology
  will not change during the time studied
• all of the resources are being used to maximum
  efficiency

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Efficiency

• Efficiency means using resources in such a way as
  to maximize the production of goods and services.
  An economy producing output levels on the
  production possibilities frontier is operating
  efficiently.

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• Identify the letters that corresponds with each
  of the following.
• An inefficient use of resources
• A currently impossible point of production
• Production of mostly X and little Y
• Production of mostly Y and little X
• What would happen to the curve if resources
  become unavailable?
• What would happen to the curve if improvements in
  technology occur or new resources become
  available?

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Growth

• Growth If more resources become available, or if
  technology improves, an economy can increase its
  level of output and grow. When this happens, the
  entire production possibilities curve shifts to
  the right.

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Exchange

• Why do people trade?
• Why do nations trade?
• Are most countries self-sufficient?
• How do you deal with your lack of
  self-sufficiency?
• Why are nations economically interdependent?
• What is barter?
• Why do we need money?
• Why is credit useful?
• What determines value?

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Warm up write down the following and tell
whether it represents Land, Labor, Capital or
Entrepreneurship.

1. John Rockefeller of Standard Oil
2. Crude oil
3. A factory building
4. A teacher giving a lesson
5. A wrench used to fix a pipe
6. Wool on a sheep
7. A plumber fixing a leak
8. A young woman getting a small business loan to
   start a consignment store