1. Thinking Like an Economist, Part One: The PPF

2. Economics: efficient use of limited resources to maximize unlimited wants
maximum efficiency achieved when it is not possible to produce more of one good without producing less of something else (ie. no waste)

3. Quantities of goods/services that can be produced are limited by available Land, Labour, Capital
Implies that choices need to be made (what to produce, how, for whom, etc.)

4. Introducing the “P.P.F.” Model
“model” = simplified version of reality
PPF = “Production Possibilities Frontier”
outer limit of an economy’s production
assumes:
a) economy only produces 2 goods
b) amounts of Land, Labour, Capital (Tech.) are fixed

5. PPF marks boundary/limit between combinations of goods that can be produced and those that cannot with existing resources
100% production efficiency ONLY occurs at points that are ON the PPF “curve”

6. Case Study: Mark’s Jeans
a single-firm economy
2 styles of jeans: Boot Cut & Straight Leg
Max. production: pr./wk

7. Production Possibilities Schedule for Mark’ Jean’s Ltd.
Possibility
Straight Leg
Boot Cut A
5000 B
4000
1000 C
3000
2000 D E F

8. Areas (combinations) above (right of) the curve are UNATTAINABLE given the current Land, Labour, Capital limits
Areas below (left of) the curve represent INEFFICIENT/WASTED use of resources
Producing on the PPF demonstrates the principle of OPPORTUNITY COSTS – production of 1 type can only be increased by producing less of the other type

9. At Mark’s Jeans, opportunity costs are constant – resources are easily transferred from one style of jean to another with little waste
BUT
What if the 2 products are very different from one another?
Text p. 17 : Ploughs and Bread and the “Principle of Increasing Relative Cost”