What is Economics. Chapter 1 Section 3 Production Possibilities Curve http://www.reffonomics.com/TRB/chapter1/pppcurve.swf http://www.reffonomics.com/TRB/chapter1/ppcurve1.swf http://www.reffonomics.com/TRB/chapter1/ppcurve2.swf http://www.reffonomics.com/TRB/chapter1/ppcurve3.swf.
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What is Economics Chapter 1 Section 3 Production Possibilities Curve http://www.reffonomics.com/TRB/chapter1/pppcurve.swf http://www.reffonomics.com/TRB/chapter1/ppcurve1.swf http://www.reffonomics.com/TRB/chapter1/ppcurve2.swf http://www.reffonomics.com/TRB/chapter1/ppcurve3.swf
What is Economics – Section 2 • 1. Present three examples that illustrate how all decisions involve trade-offs? • 2. Why must the opportunity cost of a decision always be something desirable? • 3. How do Economists use the phrase “guns and butter”? • 4. What does it mean to “think at the margin”?
What is Economics • Objectives: • Interpret a production possibilities curve. • Demonstrate how production possibilities curves show efficiency, growth, and cost. • Understand that a country’s production possibilities depend on its available resources and technology.
What is Economics • As the US entered World War II in 1941, the country faced an urgent task: create the weapons and equipment needed to win the war or face defeat. • Government agencies took the lead in switching the output of America’s factories, farms, and mines from the production of consumer goods to production of military goods.
What is Economics • Production Possibilities: • Economists often use graphs to analyze the choices and trade-offs that people make. • WHY?????
What is Economics • Production Possibilities: • Graphs help us see how one value relates to another value. • A production possibilities curve or graph shows alternative ways to use an economy’s resources. • The axes of the graphs can show the categories of goods and services or capital goods and consumer goods.
What is Economics • Production Possibilities:
What is Economics • Production Possibilities: • To draw a production possibilities curve… • You need to decide on the two goods that you want to compare; Food (Butter) & Safety (Guns) • The line that goes from the vertical axis to the horizontal axis is called the production possibilities frontier. • This line shows the combinations of two goods that a country can produce at any one time.
What is Economics • Efficiency, Growth, and Cost: • The PPF can show us how efficient a country is. • It can show whether an economy has grown or shrunk • It can show the opportunity cost of a decision to produce more of one good than another good.
What is Economics • Efficiency, Growth, and Cost: • Efficiency: • A PPF represents an economy working at its most efficient level of production. • Efficiency means using resources in such a way as to maximize the production or output of goods (or services).
What is Economics • Efficiency, Growth, and Cost: • Sometimes, economies operate inefficiently. • If the factory laid off workers, they could not produce as many goods (or services) as before. • If the factory did not get their shipment of raw materials into their factory, they could not produce as much (products) as before. • In this case, they are operating inside the PPF
What is Economics • Efficiency, Growth, and Cost: • Any point inside the line indicates an under-utilization of resources. • This means the country is using fewer resources than the economy is capable of using.
What is Economics • Efficiency, Growth, and Cost: • Growth: • A PPF reflects the country’s current production possibilities as if the country’s resources were frozen in time. • In the real world, the quantity of resources is constantly changing (number of workers, etc). • New inventions can change the existing technology to produce more goods (and services) at lower costs.
What is Economics • Efficiency, Growth, and Cost: • Cost: • Cost is not necessarily money. • Cost is the alternative we give up when we choose one option over the other. • We use the PPF to see the opportunity cost of choosing to produce more of one good over another good.
What is Economics • Efficiency, Growth, and Cost: • Can a country ever move beyond the current PPF curve?
What is Economics • Production Possibilities: • YES they can. • BUT they have to do one of the following: A. Increase their Technology B. Add more Resources At this point the country can produce beyond the current PPF curve and move the curve outward.
What is Economics REVIEW: 1. How is underutilization depicted on a PPF curve? 2. How does a PPF curve illustrate how efficient an economy is? 3. How does a PPF curve illustrate opportunity cost?
What is Economics REVIEW: 1. Underutilization is shown by any point inside the PPF curve. 2. A PPF curve show maximum possible output along the PPF curve. If a country produces along the curve, they are efficient.
What is Economics REVIEW: 3. Opportunity cost can be illustrated by comparing the data at various points on the PPF. As production of one element (good) increases, the curve shows the decrease in production of the other element (good).