Production possibility frontier bethany.ppt

PPF

1. Unit 1: Production Possibility Frontier (PPF ) Scarcity , Choice and Opportunity Cost : A ll in One Visual!

2. Production Possibility Frontier ( PPF ) A graphic representation of all possible combinations of two goods that an economy can produce. By analyzing a PPF you can determine the opportunity cost of choice and see the existence of scarcity. You can also determine what effect resources and technology have on production possibilities.

3. The economy can efficiently produce any of these combinations of snowboards and skis.

4. Scarcity and the PPF Things on the curve (A-D) are available. The curve shows efficient use of resources. What we can’t have- what is unavailable to us because we don’t have enough resources to produce it- is anything beyond the PPF (F) Beyond the curve is unattainable. That’s how the PPF shows us scarcity. We can also underutilize our resources (E) Below the curve shows inefficient use of resources.

5. Opportunity Cost and the PPF We know we can’t produce points A-D at the same time. We must make a choice. Once we make a choice, opportunity cost “pops up.” If we narrow our choices to B and C, and choose C. We increase production of skis by 20,000 What is the opportunity cost of 20,000 more skis? The opportunity cost of 20,000 more skis is 15,000 snowboards

6. Another Example Computers and Cars

7. Figure 2 The Production Possibilities Frontier Copyright©2003 Southwestern/Thomson Learning Production possibilities frontier A B C Quantity of Cars Produced 2,200 600 1,000 300 700 2,000 3,000 1,000 Quantity of Computers Produced D What is the opportunity cost of increasing cars by 100?

8. Shifts in the Curve The location of the PPF for an economy is determined mostly by the amount of resources available and the level of technology in society. If more resources become available or the level of technology increases, more goods and services can be produced and the PPF will shift to the RIGHT. If the amount of resources diminishes, if there is less, the economy can no longer produces at previous levels and the PPF will shift to the LEFT.

9. Figure 2 The Production Possibilities Frontier Copyright©2003 Southwestern/Thomson Learning Production possibilities frontier A B C Quantity of Cars Produced 2,200 600 1,000 300 700 2,000 3,000 1,000 Quantity of Computers Produced D What would happen if new computer technology was released?

10. Figure 3 A Shift in the Production Possibilities Frontier Copyright © 2004 South-Western E Quantity of Cars Produced 2,000 700 2,100 750 4,000 3,000 1,000 Quantity of Computers Produced A