production possibilities curves
DESCRIPTION
Production Possibilities Curves. Production Possibilities. Production Possibilities Curve- (graph) shows alternative ways to use an economy’s productive resources. The axes of the graph can show categories of goods and services. (farm goods and factory goods) - PowerPoint PPT PresentationTRANSCRIPT
PRODUCTION POSSIBILITIES CURVES
PRODUCTION POSSIBILITIES Production Possibilities Curve- (graph)
shows alternative ways to use an economy’s productive resources.
The axes of the graph can show categories of goods and services. (farm goods and factory goods)
The axes can also show any pair of specific goods or services. (hamburgers and hotdogs).
0 5 10 15 20 250
5
10
15
20
25Production Possibilities Curve
(15,0) All Shoes, No Watermelons
Watermelons (in millions of tons)
Shoe
s (in
milli
ons o
f pai
rs)
15 20 25 30 35 40 450
5
10
15
20
25Production Possibilities Curve
(21,0)
All Watermelons, No Shoes
Watermelons (in millions of tons)
Shoe
s (in
milli
ons o
f pai
rs)
Watermelons (Millions of
Tons)
Shoes (Millions of Pairs)
0 158 14
14 1218 920 521 0
0 5 10 15 20 250
5
10
15
20
25Production Possibilities Curve
A. (15,0) B. (8,14) C. (14,12)
D. (18,9)
E. (20,5)
F. (21,0)
Production of Watermelons and Shoes
Watermelons (in millions of tons)
Shoe
s (in
milli
ons o
f pai
rs)
PRODUCTION POSSIBILITIES CURVE Production Possibilities Frontier- The line we
draw that shows combinations of the production of our goods or services.
ANY POINT ON THAT LINE REPRESENTS A POINT AT WHICH THE COMPANY IS USING ALL OF ITS RESOURCES TO PRODUCE A MAXIMUM COMBINATION OF THOSE TWO PRODUCTS.
Represents an economy working at its most efficient level of production. Efficiency- using resources in such a way as to
maximize the production of goods and services.
Moving along the line represents a trade off between the two goods or services.
UNDERUTILIZATION
0 5 10 15 20 250
5
10
15
20
25Production Possibilities Curve
Watermelons (in millions of tons)
Shoe
s (in
milli
ons o
f pai
rs)
Underutilization
Future Production Possibilities Frontier
Underutilization- using fewer resources than the economy is capable of using.
PRODUCTION POSSIBILITIES FRONTIER New Technology, more immigrants, more
labor, economy growing, or the supply of labor or capital increases—shifts the frontier to the right.
Population ages, lose land in war, people become unhealthy or uneducated, or a decrease in capital or labor would shift the curve left.
PRODUCTION POSSIBILITIES Cost: The alternative we give up when we
choose one option over the other. (OPPORTUNITY COST)
Law of Increasing Costs: As the production switches from one item to another (shoes to watermelons), more and more resources are necessary to increase production of the second item (watermelons). Therefore… the opportunity cost increases! WHY?!
Countries must look at their resources and technology to decide what to produce.