Production Possibilities: Wherein Lies the Opportunity Cost?

2 Economics involves choice since limited resources means that there will be a limited output. A PPC will show that as tradeoffs are made, sacrifice or opportunity costs are incurred. Production Possibility Curves

3 Opportunity Cost is defined as the value of the next best alternative. So…opportunity cost measures the sacrifice we make when we are forced to make choices due to scarcity.

4 A C F B D E W RobotsRobots Shoes Points on the curve: Attainable & Efficient with these resources Production Possibility Curves

5 Points inside curve: Inefficient A C F B D E W RobotsRobots Shoes

6 A C F B D E W RobotsRobots Points outside curve: Not Attainable with these resources Production Possibility Curves

Bowed Out? 7 In the Budget Constraint – decisions are being made as to which combination of items are being purchased. In the PPF – decisions are being made as to which combinations of items are being produced. Because of this production – we need LAW OF INCREASING OPPORTUNITY COSTS

8 As production of a particular good increases, the opportunity cost of producing an additional unit rises. Economic resources are not completely adaptable Ex.) Machinery cannot always be used interchangeable Ex.) Land is not always interchangeable depending on what you are growing