Production Possibilities Frontier

1. Production Possibilities Frontier Chapter 1

2. Production Possibilities Curve We need 4 assumptions to study this concept: Efficiency Fixed resources Fixed technology Two “baskets” of products in the economy.

3. Efficiency Efficiency for an economy means: Full employment Full production Efficient use of resources

4. Efficiency Full employment means Everyone has a job Full production means All businesses are operating at their maximum Efficient use of resources means Businesses try to minimize costs & maximize outputs with the fewest inputs

5. Fixed Resources Fixed resources for the economy means: Resources of labor, capital and land are fixed in number and amount.

6. Fixed Technology Fixed technology for the economy means: Firms can only use the technology existing at the time of the model

7. Two “Baskets” of Products In this model, we will assume that the two baskets of products are military and civilian. Military basket contains all types of military products such as tanks, ammunition. Civilian basket contains all types of consumer products, such as pizzas, clothes, food.

8. Results of Assumptions: efficiency The assumptions under efficiency tell us that all resources are fully utilized. In other words, this economy is producing at its maximum capacity. We have a boom economy.

9. Results of Assumptions: fixed resources and technology The assumptions of fixed resources and technology tell us that we are looking at the economy at one point in time. It is a snapshot of the economy.

10. Results of Assumptions:two “baskets” We divide the products of this economy into either civilian or military products. We can then see the trade off between producing one or the other of these two types of products.

11. Production Possibilities Frontier: Data, Graph and Consequences

12. Data for Production Possibilities Frontier

13. Production Possibilities Frontier