Senior Economics 02/09/9 9 1 Production Possibilities Curve This curve demonstrates the tradeoff of production possibilities between two products. Y Axis X Axis

Senior Economics 02/09/9 9 2 Production Possibilities Curve ● Each point on the curve represents what is possible in the production of the two products. Notice that the curve is inverse: adding to one side means less of the other 0 Computers Stereos Y Axis X Axis

Senior Economics 02/09/9 9 3 Production Possibilities Curve ● The curve then represents the costs of producing a combination of these goods, so much of one and so much of another. 0 Computers Stereos A B Y Axis X Axis

Senior Economics 02/09/9 9 4 Production Possibilities Curve ● The trade off occurs when we decide to produce more of one product Computers Stereos A B Y Axis X Axis

Senior Economics 02/09/9 9 5 Production Possibilities Curve ●... we lose the capability to produce as much of the other. When a curve is shaped such as this one is, it is said to be a “constant cost curve.” 0 Computers Stereos A B Y Axis X Axis

Senior Economics 02/09/9 9 6 What is the difference between a Constant Costs Production Possibilities Curve and an Increasing Costs Curve?

Senior Economics 02/09/9 9 7 Production Possibilities Curve ●... but the increasing cost curve demonstrates an increasing amount of opportunity cost at certain ranges of the decision. 0 Computers Stereos A Y Axis X Axis

Senior Economics 02/09/9 9 8 Production Possibilities Curve ●... but the increasing cost curve demonstrates an increasing amount of opportunity cost at certain ranges of the decision. What is also demonstrated is the concept of “diminishing returns” 0 Computers Stereos A B Y Axis X Axis

Senior Economics 02/09/9 9 9 What does it mean to have a point inside and outside the PPC?

Senior Economics 02/09/ Production Possibilities Curve ● Points A and B are attainable. In fact, resources are being used efficiently because to increase one or the other is to incur an opportunity cost. 0 Computers Stereos A B Y Axis X Axis

Senior Economics 02/09/ Production Possibilities Curve ● Point C reflects an economy using its resources inefficiently because both commodities can be increased without incurring an opportunity cost. 0 Computers Stereos A B C Y Axis X Axis

Senior Economics 02/09/ Production Possibilities Curve ● Point D reflects an impossible amount to achieve. There simply are not enough resources to produce at this point. 0 Computers Stereos A B C D Y Axis X Axis

Senior Economics 02/09/ Is it possible to reach a point outside the PPC? ● Yes it is! The Factors of Production would have to be increased. This would cause an increase (or movement) of the curve to expand into the frontier and encompass point D.

Senior Economics 02/09/ Production Possibilities Curve ● An increase in the Factors of Production could move the curve... 0 Computers Stereos A B D Factors of Production (Land, Labor, Capital, Entrepreneurial Ability Y Axis X Axis

Senior Economics 02/09/ Production Possibilities Curve 0 Computers Stereos A B D Increase in the Factors of Production (Land, Labor, Capital, Entrepreneurial Ability ● An increase in the Factors of Production could move the curve......out to encompass the new level of production. Y Axis X Axis