Oh the Production

Possibilities

Factors of ProductionLand: Naturally occurring resources whose supply is

fixed.

Ex: Coal, Gold, Physical Space, Oil

LaborLabor: Physical human activity that provides the goods

or services in an economy.

Ex: Coal Miners, Desk Jockeys, Retail Workers

Human CapitalHuman Capital: Collective skills, knowledge, or other

intangible assets of individuals that can be used to

create economic value for the individuals, their employers,

or their community.

CapitalCapital: Capital goods, real capital, or capital assets are

already-produced durable goods or any non-financial

asset that is used in production of goods or services.

Production Possibilities A production possibilities graph shows alternative

ways that an economy can use its resources.

The production possibilities frontier is the line that

shows the maximum possible output for that

economy.

Production Possibility Efficiency: means using resources in such a way as to

maximize the production of goods and services. An

economy producing output levels on the production

possibilities frontier is operating efficiently.

Production Possibilities Growth If more resources become available, or if

technology improves, an economy can increase its

level of output and grow. When this happens, the

entire production possibilities curve “shifts to the

right.”

Production Possibilities What trade-offs are illustrated by the graph?

What is the opportunity cost of increasing watermelon

production from 20 to 21 million?

Opportunity Costs The opportunity cost of moving from a to b is…

The opportunity cost of moving from b to d is…

The opportunity cost of moving from d to b is…

The opportunity cost of moving from f to c is…

What can you say about point G?

Unattainable

On your Guided Notes:

1. Create a production possibilities graph with your own

two resources using the above numbers. Be creative.

2. List one reason for a shift to the left and one for a shift

to the right. (Demand is constant)

Simulation: In Real LifeIn this simulation, students will become a “business owner” or a “provider.”

The “Business Owner” will receive money and a scenario sheet. They will have to map their own production possibility curve and figure out what they need (land ,labor, or resource capital) in order to shift their curve to the right. Then they will buy their factor of production. Once they have purchased their item they will graph another curve showing their shift.

“Providers” will have a sheet of information that tells the owner how much money they need to buy their factor of production as well as their own scenario. “Providers” will sell their products and read the scenario to the “business owners.”

Make that money!