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Standard Address

Standard Address. 12.1 Students understand common terms & concepts and economics reasoning. Objectives. LESSON 2.2 Production Possibilities Frontier. Describe the production possibilities frontier and explain its shape. Explain what causes the production possibilities frontier to shift.

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Standard Address

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  1. Standard Address 12.1 Students understand common terms & concepts and economics reasoning. CONTEMPORARY ECONOMICS: LESSON 2.2

  2. Objectives LESSON 2.2Production Possibilities Frontier Describe the production possibilities frontier and explain its shape. Explain what causes the production possibilities frontier to shift. CONTEMPORARY ECONOMICS: LESSON 2.2

  3. Key Terms LESSON 2.2Production Possibilities Frontier production possibilities frontier (PPF) efficiency law of increasing opportunity cost economic growth CONTEMPORARY ECONOMICS: LESSON 2.2

  4. What is efficiency? CONTEMPORARY ECONOMICS: LESSON 2.2

  5. Efficiency and Production Possibilities Frontier • Simplifying assumptions • PPF model • Inefficient and unattainable production • Shape of the PPF CONTEMPORARY ECONOMICS: LESSON 2.2

  6. CHECKPOINT: Page 45 Efficiency and Production Possibilities Frontier The PPF model shows the possible combination of the two types of goods that can be used when available resources are employed fully and efficiently. The bow shape of the PPF curve reflects the law of increasing opportunity cost in that each additional increment of one good requires the economy to give up successively larger increments of the other good. Describe the PPF models, and explain its shape. CONTEMPORARY ECONOMICS: LESSON 2.2

  7. The Shape of the PPF NOTES • Efficiency – • Any movement along the PPF involves giving up some of one good to get more of another. CONTEMPORARY ECONOMICS: LESSON 2.2

  8. Production Possibilities Frontier • A through Fare attainable • I represents inefficient use of resources • U represents unattainable combinations CONTEMPORARY ECONOMICS: LESSON 2.2

  9. The Shape of the PPF (Cont) NOTES • Law of increasing opportunity cost – • If the economy uses all resources efficiently then the law of increasing opportunity cost will apply. CONTEMPORARY ECONOMICS: LESSON 2.2

  10. CONTEMPORARY ECONOMICS: LESSON 2.2

  11. Shifts in the PPF • Changes in resource availability • Increases in stock of capital goods • Technological change • Lessons from the PPF CONTEMPORARY ECONOMICS: LESSON 2.2

  12. Increase in available resources Decrease in available resources Shifts in the PPF CONTEMPORARY ECONOMICS: LESSON 2.2

  13. Changes in resource availabilityNOTES • If the labor force increases, such as through immigration, the PPF shifts outward. • An increase in the availability of other resources, such as new oil discoveries, also would shift the PPF outward. CONTEMPORARY ECONOMICS: LESSON 2.2

  14. Changes in resource availability (Cont)NOTES • The bowed-out shape of the PPF reflects the law of increasing opportunity cost. CONTEMPORARY ECONOMICS: LESSON 2.2

  15. CHECKPOINT: Page 46 Shifts in the PPF The PPF may shift as a result of changes in resources availability or in technology. What causes the production possibilities frontier to shift? CONTEMPORARY ECONOMICS: LESSON 2.2

  16. Key Concepts: Page 47 1. Explain why each of the following assumptions is made when production possibilities frontier (PPF) is constructed. a. Only two goods or services are considered. a. It is difficult to graph more than two products at once. CONTEMPORARY ECONOMICS: LESSON 2.2

  17. Key Concepts: Page 47 1. Explain why each of the following assumptions is made when production possibilities frontier (PPF) is constructed. b. The time considered is limited. b. Different amounts of production may take place given the same resources in different periods of time. CONTEMPORARY ECONOMICS: LESSON 2.2

  18. Key Concepts: Page 47 1. Explain why each of the following assumptions is made when production possibilities frontier (PPF) is constructed. c. The available resources are fixed in terms of quality and quantity. c. Different amounts and quantities of resources will result in different amounts of production. CONTEMPORARY ECONOMICS: LESSON 2.2

  19. Key Concepts: Page 47 1. Explain why each of the following assumptions is made when production possibilities frontier (PPF) is constructed. d. The available technology does not change in the time considered. d. Different technologies can change efficiency of producing the product. CONTEMPORARY ECONOMICS: LESSON 2.2

  20. Key Concepts: Page 47 2. What does a production possibilities frontier for plastic tables and bowling balls indentify? A PPF indentifies the possible combinations of plastic tables and bowling balls that can be produced when available resources are employed fully and efficiently. CONTEMPORARY ECONOMICS: LESSON 2.2

  21. Key Concepts: Page 47 3. What does it mean to say that firm produces bowling balls efficiently? The firm is producing the maximum number of bowling balls possible from its available resources. CONTEMPORARY ECONOMICS: LESSON 2.2

  22. Key Concepts: Page 47 4. If a firm that produces bowling balls and plastic tables is operating inside its PPF, how efficiently is it using its resources? Any point inside the PPF indicates inefficient production. CONTEMPORARY ECONOMICS: LESSON 2.2

  23. Key Concepts: Page 47 7. ABC Electronics Inc. can produce either cameras or DVD Players in its factory. The more it makes of one product, the less it is able make of the other. CONTEMPORARY ECONOMICS: LESSON 2.2

  24. CONTEMPORARY ECONOMICS: LESSON 2.2

  25. Key Concepts: Page 47 7. Why isn’t there a one-for-one trade-off between production of these two products. The Law of increasing opportunities cost is based on the fact that not all resources are equally adaptable to all types of production. CONTEMPORARY ECONOMICS: LESSON 2.2

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