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**The Production Possibilities Curve**

PPC

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**What does a PPC graph show?**

The Production Possibilities Curve (PPC) shows all possible combinations of two goods to be produced.

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PPC for the Nation Guns Butter

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**All resources are being used to produce guns.**

1500 Guns Butter

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**All resources are being used to produce butter.**

1500 Guns 2000 Butter

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**Both guns and butter are produced**

1100 Guns 1500 Butter

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**Production can be anywhere on or under the curve.**

It may NOT be outside the curve– there are not enough resources to do so.

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***PPC A At point A (on the frontier), production is EFFICIENT. Guns**

Butter

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**PPC B At point B (inside the frontier), production is INEFFICIENT.**

Guns Butter

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PPC: Trade-off A and B represent tradeoffs. A produces more guns, B produces more butter. A B Guns Butter

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**How much of the alternate must be given up?**

The PPC can be used to show the opportunity cost of choosing one good over the other. How much of the alternate must be given up?

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***PPC: Opportunity Cost**

The opportunity cost of A equals the decrease in butter: 1100 units. A 1400 B Guns 800 600 1700 Butter

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**A B The opportunity cost of B equals the decrease in guns: 600 units.**

1400 B Guns 800 600 1700 Butter

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**The PPC can also show economic growth by moving outward.**

Due to additional resources, increasing population, or new technology.

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*PPC Growth Growth Guns Butter

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**5 PPC Concepts Scarcity is represented by the frontier line.**

2. Choices represented by pts A, B. or C. 3. Opportunity Cost is illustrated in terms of moving from one point to another 4. Efficiency - using all available resources to produce.

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**Pizzas (hundred thousands)**

PRODUCTION POSSIBILITIES in table form PIZZA (in hundred thousands) Robots (in thousands) graphical form Robots (thousands) Pizzas (hundred thousands) 17

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**Pizzas (hundred thousands)**

PRODUCTION POSSIBILITIES in table form PIZZA (in hundred thousands) Robots (in thousands) graphical form Robots (thousands) Pizzas (hundred thousands) 18

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**Pizzas (hundred thousands)**

PRODUCTION POSSIBILITIES in table form PIZZA (in hundred thousands) Robots (in thousands) graphical form Robots (thousands) Pizzas (hundred thousands) 19

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**Pizzas (hundred thousands)**

PRODUCTION POSSIBILITIES in table form PIZZA (in hundred thousands) Robots (in thousands) graphical form Robots (thousands) Pizzas (hundred thousands) 20

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**Pizzas (hundred thousands)**

PRODUCTION POSSIBILITIES in table form PIZZA (in hundred thousands) Robots (in thousands) graphical form Robots (thousands) Pizzas (hundred thousands) 21

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**Pizzas (hundred thousands)**

PRODUCTION POSSIBILITIES Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Not Possible A B W C Possible & Efficient Robots (thousands) D Possible but Inefficient E Pizzas (hundred thousands) Q

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**How Is Economic Growth shown on a Graph? An outward shift (right)**

[Ability to produce a larger Amounts of goods over time] C A b Capital Goods a B D Consumer Goods

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**3. Technological advances -**

PRODUCTION POSSIBILITIES Notes... Economic Growth Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1. Increase in resources - 2. Better resource quality - More of either or both is possible 3. Technological advances -

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**Let’s Review What does the PPC show?**

What do points inside the curve represent? What do points outside the curve represent? What do points on the curve represent? How can we determine the opportunity cost? How is economic growth represented on the PPC? What can cause economic growth?

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