1. Learning Objective: Today I will be able to apply the law of opportunity cost by drawing the PPF curve when it shifts or moves along the curve. Agenda 1)Learning Objective 2)Lecture: Ch. 2.2 PPF/Efficiency 3)PPF Worksheet 4)Vocabulary 5)Exit Slip

2. Q & A How much can an economy produce with the resources available? What are the economy’s production capabilities? – Simple Model  Production Possibilities Frontier Model (PPF) – By simplifying assumptions.

3. Title Notes: CH. 2.2 PPF/Efficiency Simplifying assumptions 1.Limit the model to 2 classes of products: – consumer goods – capital goods 2.Define the time. 3.Resources Fixed, quantity & quality 4.Technology does not change

4. Consumer Goods OR Capital Goods?

9. CONTEMPORARY ECONOMICS: LESSON 2.2 9 Production Possibilities Frontier (PPF): – Combination of products ( consumer & capital) – Assumes the use of resources fully & efficiently Efficiency: producing the max. possible output from available resources. Inefficient and unattainable production: – U = Unattainable – I = Inefficient – A, B, C, D, E, F = EFFICIENT

10. CONTEMPORARY ECONOMICS: LESSON 2.2 10 Any point on the PPF curve is efficient & attainable. Points, A through F are attainable I represents inefficient use of resources U represents unattainable combinations

11. CHECK FOR UNDERSTANDING What model is used to figure out the economy’s capabilities? – The PPF Model (Production Possibilities Frontier) If any point on the PPF graph is ON the curve, is it efficient, inefficient, or unattainable? – Any point on the PPF graph is EFFICIENT.

12. CONTEMPORARY ECONOMICS: LESSON 2.2 12 What shapes PPF curve? – Law of increasing opportunity cost – Any movement along the PPF curve where the more you produce of one good, the much less you produce of the other good. Not all resources adapt the same based on available resources.

13. CHECK FOR UNDERSTANDING What shapes the curve of PPF? – The law of increasing opportunity cost What does that mean? – Production of a certain will decrease if the available resources are used to produce a different good; vice versa. Ex. Nike produces shoes & athletic clothes. Nike may choose to increase production of clothing, but that means they produce less shoes.

14. CONTEMPORARY ECONOMICS: LESSON 2.2 14

15. CONTEMPORARY ECONOMICS: LESSON 2.2 15 Shift of PPF Curve: The PPF may shift as a result in changes of resources or technology Changes in resources available or technology moves the entire curve. – Moves outward = Increase when available resources increase or new tech. ex. tech., new oil reserves, etc. (even immigration) – Moves inward = decrease When available resources decrease or tech. malfunction Economic growth - An expansion of the economy’s PPF. Increase in available resources Decrease in available resources

16. Checking for Understanding Chase bank just opened up a new & more advanced ATM machine, called kiosks & provides almost every service a teller provides. – Shift? Left or Right? Hurricane Patricia damaged some vacation hotels and trashed some beaches in Mexico. – Shift? Left or Right? In 2013 Kobe Bryant renewed his contract with Lakers. What happens to Lakers’ use of resources (PPF)? – Shift? Left or Right?

17. CONTEMPORARY ECONOMICS: LESSON 2.2 17 Increases in capital goods: – The more capital goods produced during one period, the more output it can produce in the next production period. If in 2015, we make more ovens than pizza than pizza… …….in 2016, we will be able to make more pizza

18. PPF Worksheet Question #1: – Right? Left? Or No Change? – Draw it. Question #2: – Calculate Profit – Which combination makes the best profit? – Which combination should be used to produce? Question #3: – Place each combination onto a point in the graph. ** Note, calculated profit not in the graph.

19. Exit Slip What is the PPF? How do we know when it changes? Production possibilities frontier is___________. We know the PPF curve changes when__________________________.