Aim: How do economists illustrate

economic choice?

“We must choose between guns and butter” – Adolf Hitler

“It turns out that what seems to be true for individuals is not always true for society as a whole.”

What does the PPF illustrate?

• constrained choice

• opportunity cost

• scarcity

Production Possibilities Curve

• curve represents full and efficient use of resources represented in the curve

• inside the curve – inefficient use of resources

• outside the curve – unattainable - burnout

Shift of Curve

• introduction of new resources

• introduction of new technology

A B

C

Production Combination Clothes

Savings for

College 1 $ 0 $ 100

2 25 75

3 40 60

4 60 40

5 75 25

6 100 0

(1)Plot curve

(2)What is the most amount that can be saved for college?

(3)What would you to give up in order save that much?

(4)What do you think the optimal choice is? Explain.

(5)What could be done to adjust this curve?

The United States Congress must approve the federal budget. This involves many difficult choices. For example, the Congress can decide to spend money on national defense, health insurance programs, roads and highways, education, and many other worthwhile causes. Curve B illustrates a hypothetical trade-off between spending for defense and highways.

(1)What is the opportunity cost of one aircraft carrier?

(2)What is the opportunity cost of 300 miles of highway?

(3)What other information would you need to decide on the best combination of defense spending and highway construction?