8/18/2014

1
Society has unlimited wants but limited resources
The Economizing Problem
Scarcity
WE HAVE A PROBLEM!!
1
The Production
Possibilities Curve
(PPC)
Using Economic Models
Step 1: Explain concept in words
Step 2: Use numbers as examples
Step 3: Generate graphs from numbers
Step 4: Make generalizations using graph
2
8/18/2014
2
IMPOSSIBILITY
INEFFICIENCY/
UNEMPLOYMENT
What is the Production Possibilities Curve?
A production possibilities graph (PPG) is a model
that shows alternative ways that an economy
can use its scarce resources
This model graphically demonstrates scarcity,
trade-offs, opportunity costs, and efficiency.
4 Key Assumptions
Only two goods can be produced
Full employment of resources
Fixed Resources (Ceteris Paribus)
Fixed Technology
4
8/18/2014
3
A B C D E f
14 12 9 5 0 0
0 2 4 6 8 10
Bikes
Computers
NOW GRAPH IT: Put bikes on y-axis and
computers on x-axis
Production Possibilities Table
Each point represents a specific
combination of goods that can be
produced given full employment of
resources.
5
B
i
k
e
s
Computers
14
12
10
8
6
4
2
0
0 2 4 6 8 10
A
B
C
D
E
G
Inefficient/
Unemployment
Impossible/Unattainable
(given current resources)
Efficient
Production Possibilities
How does the PPG graphically demonstrates scarcity, trade-
offs, opportunity costs, and efficiency?
6
8/18/2014
4
2 Bikes
2.The opportunity cost of
moving from b to d is
4.The opportunity cost of
moving from f to c is
3.The opportunity cost of
moving from d to b is
7 Bikes
4 Computer
0 Computers
5.What can you say about point G?
Unattainable
1. The opportunity cost of
moving from a to b is
Example:
Opportunity Cost
7