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Standard Address

Learn about the production possibilities frontier (PPF) and how it represents efficient resource allocation. Explore the factors that cause the PPF to shift.

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Standard Address

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

  2. A BULLDOG ALWAYS Commitment Attitude CARES Respect Encouragement Safety

  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 • Keep it simple (KISS) • Limit the model to 2 classes of products • Define the time • Fix quantity and quality • Technology does not change CONTEMPORARY ECONOMICS: LESSON 2.2

  6. Efficiency and Production Possibilities Frontier • PPF model • Shows the possible combinations of two types goods that can be produced when available resources are used fully and efficiently. • Efficiency – Producing the maximum possible output from available resources CONTEMPORARY ECONOMICS: LESSON 2.2

  7. Efficiency and Production Possibilities Frontier • Inefficient and unattainable production • U = Unattainable • I = Inefficient • A, B, C, D, E, F = EFFICIENT 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. Efficiency and Production Possibilities Frontier • Shape of the PPF • Curved • Any movement along the PPF involves giving up some of one good to get more of another. CONTEMPORARY ECONOMICS: LESSON 2.2

  10. Efficiency and Production Possibilities Frontier • Shape of the PPF • If the economy uses all resources efficiently, the law of increasing opportunity cost will apply. CONTEMPORARY ECONOMICS: LESSON 2.2

  11. Efficiency and Production Possibilities Frontier • Shape of the PPF • Law of Increasing opportunity cost – Each additional increment of one good requires the economy to give up successively larger increments of the other good. CONTEMPORARY ECONOMICS: LESSON 2.2

  12. CONTEMPORARY ECONOMICS: LESSON 2.2

  13. 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

  14. Increase in available resources Shifts in the PPF • The PPF may shift if as a result in changes of resources or technology • Economic growth - An expansion of the economy’s production possibilities or abilities to produce CONTEMPORARY ECONOMICS: LESSON 2.2

  15. Increase in available resources Shifts in the PPF • Changes in resource availability • 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

  16. Shifts in the PPF • Increases in stock of capital goods • The more capital goods an economy produces during one period, the more output it can produce in the next production period. CONTEMPORARY ECONOMICS: LESSON 2.2

  17. Shifts in the PPF • Technological change • An increase in technology will shift the PPF outward. CONTEMPORARY ECONOMICS: LESSON 2.2

  18. Shifts in the PPF • Lessons from the PPF • The bowed-out shape of the PPF reflects the law of increasing opportunity cost. CONTEMPORARY ECONOMICS: LESSON 2.2

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

  20. 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

  21. 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

  22. CONTEMPORARY ECONOMICS: LESSON 2.2

  23. 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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