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8/13/2019 AP Micro 1-4 Production Possibilities Curve
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Unit 1: Basic
Economic Concepts
1
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REVIEW1. Explain relationship between scarcity and choices
2. Differentiate between positive & normative
3. Differentiate between price and cost
4. Give the equation for profit
5. Differentiate between consumer and capital goods6. Give examples of each of the 4 Factors of
Production
7. Define tradeoffs
8. Define opportunity cost
9. Differentiate between accounting costs and
economic costs
10.Name 10 different teachers at SPHS? 2
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Society has unlimited wants but unlimited resources
The Economizing Problem
Scarcity
WE HAVE A PROBLEM!!
3
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The Production
Possibilities Curve
(PPC)Using Economic ModelsStep 1: Explain concept in words
Step 2: Use numbers as examplesStep 3: Generate graphs from numbers
Step 4: Make generalizations using graph
4
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What is the Production Possibilities Curve?
A production possibilities graph (PPG) is a
model that shows alternative ways that aneconomy 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 (Ceter is Par ibus)
Fixed Technology5
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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 specificcombination of goods that can be
produced given full employment of
resources.
6
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Bikes
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 PossibilitiesHow does the PPG graphically demonstrates scarcity,
trade-offs, opportunity costs, and efficiency?
7
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2 Bikes
2.The oppor tun i ty c ost of
moving from b to d is
4.The oppor tun i ty c ost of
moving from f to c is
3.The oppor tun i ty c ost of
moving from d to b is
7 Bik es
4 Compu ter
0 Compu ters
5.What can you s ay about po int G?
Unattainable
1. The oppor tun i ty c ost o f
moving from a to b is
Example:
Opportunity Cost
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The Production Possibilities
Curve (or Frontier)
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PIZZA 0 1 2 3 4CALZONES 4 3 2 1 0
List the Opportunity Cost of moving from a-b,
b-c, c-d, and d-e. Constant Opportunity Cost- Resources are
easily adaptable for producing either good.
Result is a straight line PPC (not common)
Production Possibilities
A B C D E
10
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PIZZA 20 19 16 10 0
ROBOTS 0 1 2 3 4
List the Opportunity Cost of moving from a-b,
b-c, c-d, and d-e.
Law of Increasing Opportunity Cost- As you produce more of any good, the
opportunity cost (forgone production of
another good) will increase. Why? Resources are NOT easily adaptable
to producing both goods.
Result is a bowed out (Concave) PPC
A B C D EProduction Possibilities
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Constant vs. Increasing
Opportunity Cost
Corn
Wheat
Cactus
Pineapples
Identify which product would have a straight linePPC and which would be bowed out?
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1 Bike
2.The PER UNIT opportu nity
cost of moving from b to c is
4.The PER UNIT opportu nity
cost of moving from d to e is
3.The PER UNIT opportu nity
cost of moving from c to d is
1.5 (3/2) Bik es
2 Bik es
2.5 (5/2) Bik es
= Opportunity Cost
Units Gained
1. The PER UNIT opportun i ty co st
of moving from a to b is
Example:
PER UNIT Opportunity CostHow much each marginal
unit costs
NOTICE: Inc reasing Opportu nity Cos ts 13
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The Production PossibilitiesCurve and Efficiency
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Productive Efficiency-
Products are being produced in the
least costly way.
This is any point ON the Production
Possibilities Curve
Allocative Efficiency-
The products being produced are theones most desired by society.
This optimalpoint on the PPC depends
on the desires of society.
Two Types of Efficiency
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Productive and Allocative Efficiency
Bikes
Computers
14
12
10
8
6
4
2
0
0 2 4 6 8 10
A
B
C
D
F
E
Which points are productively efficient?
Which are allocatively efficient?
G
16
Productively Efficientcombinations are A through D
Allocative Efficientcombinations depend on
the wants of society(What if this represents a
country with no electricity?)
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Why two types of efficiency?
Size 20 running
shoes
Size 10 running shoes
A
Is combination A efficient?
Yes and No. It is productively efficient but it is not thecombination society wants
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Shifting the ProductionPossibilities Curve
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4 Key Assumptions Revisited
Only two goods can be produced
Full employment of resources
Fixed Resources (4 Factors)
Fixed Technology
What if there is a change?
3 Shifters of the PPC1. Change in resource quantity or quality
2. Change in Technology
3. Change in Trade 19
Production Possibilities
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Robo
ts
Pizzas
What happens if
there is an increase
in population?
20
Production Possibilities
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Robo
ts
Pizzas
What happens if
there is an increase
in population?
21
Production Possibilities
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Robo
ts
Pizzas
What if there is atechnology improvement
in pizza ovens
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Production Possibilities
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Robo
ts
Pizzas
What if there is atechnology improvement
in pizza ovens
23
Production Possibilities
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PanamaFavors
Consumer Goods
MexicoFavors
Capital Goods
Consumer goods
Ca
pitalGoods
Current
PPC
Future
PPC
Consumer goodsCapitalGoods
FuturePPC
Current
PPC
Capital Goods and Future Growth
MexicoPanama24
Countries that produce more capital goods will have
more growth in the future.
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PPC PracticeDraw a PPC showing changes for each of the
following:
Pizza and Robots (3)
1. New robot making technology
2. Decrease in the demand for pizza
3. Mad cow disease kills 85% of cows
Consumer goods and Capital Goods (4)
4. Destruction of power plants leads to severe
electricity shortage5. Faster computer hardware
6. Many workers unemployed
7. Significant increases in education25
Q i #1
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New robot making technology
Q
Q
Robots
Pizzas
Question #1
26
A shift only for Robots
Q i #2
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Decrease in the demand for pizza
Q
Q
Robots
Pizzas
Question #2
27
The curve doesnt shift!
A change in demand
doesnt shift the curve
Q i #3
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Mad cow disease kills 85% of cows
Q
Q
Robots
Pizzas
Question #3
28
A shift inward only for
Pizza
Q i #4
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BP Oil Spill in the Gulf
Q
QCapitalGoods
(Guns)
Consumer Goods (Butter)
Question #4
29
Decrease in resources
decrease production
possibilities for both
Q ti #5
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Faster computer hardware
Q
QCapitalGoods
(Guns)
Consumer Goods (Butter)
Question #5
30
Quality of a resourceimproves shifting the
curve outward
Q ti #6
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Many workers unemployed
Q
QCapitalGoods
(Guns)
Consumer Goods (Butter)
Question #6
31
The curve doesnt shift!
Unemployment is just a
point inside the curve
Q ti #7
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Significant increases in education
Q
QCapitalGoods
(Guns)
Consumer Goods (Butter)
Question #7
32
The quality of labor is
improved. Curve shifts
outward.
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Paul Solman Video
Production Possibilities
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