AP Economics Mr. Bernstein Module 3: The Production Possibilities Curve September 11, 2014

AP Economics Mr. Bernstein The Production Possibilities Curve Model A very simple model can explain a lot Highlights the importance of trade-offs in economic analysis Helps us understand efficiency, opportunity cost, and economic growth There are two sources of economic growth - increases in the availability of resources and improvements in technology 2

The Production Possibilities Curve 3 AP Economics Mr. Bernstein

The Production Possibilities Curve Simplifying Assumptions – Resources and Technology are Fixed at a point in time – Economy produces only two goods Off the curve is Not Feasible or Feasible but inefficient On the curve is feasible and efficient 4 AP Economics Mr. Bernstein

The Production Possibilities Curve A linear PPC means Opportunity Costs are constant Example: Pizzas vs Bulldozers. At every level of production, the tradeoff in # of pizzas per bulldozer is the same But not all pizzas and not all bulldozers are created at the same cost. Why? 5 AP Economics Mr. Bernstein

The Production Possibilities Curve Concave due to “Law of increasing opportunity costs” 6 AP Economics Mr. Bernstein

Economic Growth Expansion of an economy’s production possibilities 7 AP Economics Mr. Bernstein