1. Daily: What are the costs and benefits of having a part time job?
A.P Microeconomics
Daily:
What are the costs and benefits of having a part time job?

2. Production Possibilities Frontier
Economic Model:
a graph or illustration used by economists to explain terms and theories.
The PPF will show us different combinations of items to be produced when all resources are fully employed.

3. The Bieron Corporation
Apple Pies
Comps A
900 B
800 20 C
600 40 D
300 60 E 70 A
900 B
800
Apple Pies
This model shows the different combinations of apple pies and computers the Bieron Corporation can make on any given day.
At most _____ apple pies can be made and at most ______ computers can be made.
700 C
600
500
Full Efficiency
400
900 D
300 70
200
100 E 10 20 30 40 50 60 70
Computers

4. The Bieron Corporation
100 apple pies are sacrificed, for some resources are moved to computers
At point A this economy is producing 900 apple pies; however the advisors suggest reallocating some resources into making computers. It is recommended to begin production of computers with 20 per production cycle. By choosing 20 computers what is given up? A
900 B
800
Apple Pies
700 C
600
500
400 D
300
200
100 E 10 20 30 40 50 60 70
Computers

5. The Bieron Corporation
Is the trade off worth the opportunity cost? What information would be needed to answer this question? A
900 B
800
Apple Pies
700 C
600
Cost of production as well as price sold at, where can the Bieron Corp maximize profits!
500
400 D
300
200
100 E 10 20 30 40 50 60 70
Computers

6. The Bieron Corporation
In order to increase to 600 pies from 300, 20 computers must be sacrificed.
This economy is producing at point D, what is the opportunity cost of moving production to point C? A
900 B
800
Apple Pies
700 C
600
500
400 D
300
200
100 E 10 20 30 40 50 60 70
Computers

7. The Bieron Corporation
At this production period could 800 apple pies and 60 computers be produced? Explain. A
900 B
800
Apple Pies
700
Not currently, this is outside of current capabilities. Can be possible with more resources (expansion)!! C
600
500
400 D
300
200
100 E 10 20 30 40 50 60 70
Computers

8. The Bieron Corporation
At this production period could 300 apple pies and 30 computers be produced? What is wrong with this production point? A
900 B
800
Apple Pies
700 C
600
Yes, possible; but below this firm’s full potential. Some resources are being wasted.
500
400 D
300
200
100 E 10 20 30 40 50 60 70
Computers

9. Production Possibilities Frontier
The Production Possibilities Frontier (PPF) is a curve showing all alternative combinations of goods that can be produced when available resources are used fully and efficiently (a.k.a. PPC, curve).
Efficiency exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another good.

10. The Bieron Corporation
900 B
800
Apple Pies
700
Full Efficiency C
600
500
Beneath the line is
NOT EFFICIENT!
If I can increase computers
and not have to sacrifice
any apple pies, then
resources are being wasted.
400 D
300
200
100 E 10 20 30 40 50 60 70
Computers

11. Assumptions Used in Constructing a Production Possibilities Frontier:
Two Goods: For instance, assume that there are only apple pies and computers available in the economy. This allows us to analyze the tradeoffs between goods.
Common Resources: This assumption is that the same resources can be used to produce either of the two goods.
Fixed Technology: Given full employment, this assumption is to rules out the possibility of increasing the output of one good without decreasing the output of another good, which is usually the case in the short run. In other words, it is not possibly to get more of one good without giving up some of another good.
Fixed Resources: This assumption rules out an increase in output from the discovery of additional resources.

12. When we will use the ppf:
Individual Choices
Resource - $$
Do I spend all my money on the
Movies or all on dinner? Or
Some combination of both?
Movies
Dinner

13. When we will use the ppf:
Individual Choices
Resource - Time
Do I spend all my time working
Or all my time playing? Or,
Some combination of both?
Work
Play

14. When we will use the ppf:
Firm’s Choices
Resource - Factors
Should we focus our resources
On manufacturing only mud, or
Manufacturing only water, or
Some combination of both?
Mud
We will talk
About why
This line
Should be
Curved and
Not straight!!
Bottled Water

15. When we will use the ppf:
National Choices
Resource - $$
Presidents have
Struggled with this
Dilemma greatly!
For example, LBJ
Couldn’t afford his
Great Society due to
The Vietnam War!!
Should more of the national
Budget be devoted to domestic
Programs or foreign affairs?
GUNS VS. BUTTER
Domestic Spending
BUTTER
Foreign Spending
GUNS

16. AP Microeconomics
Daily: What does a firm have to do to produce beyond its full potential?  Is this always a safe decision?  Explain.
After answering question, open your ppf note packet from last class, draw the curve for the consumer goods and capital goods and answer the 4 questions that follow.

17. Making Choices
One of the most important concepts in using a ppf is CHOICE. Since economics is the science of choices, we have to reflect back to trade-offs and opportunity costs. Trade off studies the choices we make when faced with decisions and opportunity costs are the sacrifices made when a decision is made, what was given up.

18. This is an important principle!!!
Practice Problem
Consumer Goods 1 2 3 4
Capital
Goods 60 55 45 30
What is the cost to obtain
1 additional consumer good
when there are 60 units of
capital goods?
1 additional unit of consumer goods where there are 55 united of capital goods?
What is the cost to obtain 15 additional capital goods when there are 3 units of consumer goods?
Is it possible to produce 50 units of capital goods and 4 units of consumer goods?
Notice with these two problems, both are showing the choice of one more unit of consumer goods, but the second one has a greater opportunity cost (10 cap. gds.)!!
This is an important principle!!!
No, not enough resources!!

19. When does the production possibilities curve shift?
Increase the supply of resources: migration, new oil reserves, better capital goods.
Improve the technology: the discovery of more efficient means of production shifts the frontier outward.
Select an allocation of goods that has capital accumulation: some consumption must be given up today so that more capital goods can be produced.

20. Even Expansion

21. Even Expansion

22. The Law of Increasing Opportunity Costs
The negative slope of the ppf indicates the tradeoff that a society faces between two goods; the ppf can show that some trade-offs have a higher opportunity cost than others.
As we reallocate resources from one output to another, efficiency may be sacrificed.

23. The Law of Increasing Opportunity Costs

24. Straight vs. Curved PPF
Straight: if the resources can be reallocated without any loss of efficiency, the line has one slope ($$ for movies or dinner)
Curved: if the resources are not perfectly transferrable then there will be some losses when the output decision is changed (apple pies to computers)

25. Practicing with the PPF
Agricultural
Goods 2 4 6 8
Non-Agricultural Goods 50 45 35 20
What is the opportunity cost to obtain 2 additional units of agricultural goods where there are 50 units of non-agricultural goods?
What is the opportunity cost to obtain 2 additional units of agricultural goods where there are 45 units of non-agricultural goods?
What is the opportunity cost to obtain 2 additional units of agricultural goods where there are 20 units of non-agricultural goods?
Does this curve show the law of increasing opportunity costs? Explain.
Will this PPF be straight or curved? Explain.