Chapter 1 Section 3 Vocabulary Key Terms production

Chapter 1: Section 3 Vocabulary

Key Terms • production possibilities curve: a graph that shows alternative ways to use an economy’s productive resources • production possibilities frontier: a line on a production possibilities curve that shows the maximum possible output an economy can produce • efficiency: the use of resources in such a way as to maximize the output of goods and services Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 2

Key Terms, cont. • underutilization: the use of fewer resources than an economy is capable of using • law of increasing costs: an economic principle which states that as production shifts from making one good or service to another, more and more resources are needed to increase production of the second good or service Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 3

Chapter 1: Section 3 Production Possibilities Curves

Guiding Question As you listen, keep in mind the guiding question……? – How does

Production Possibilities Curves • Economists use graphs called production possibilities curves to show alternative ways of using a countries resources • For example, an economist might want to study the production of shoes and watermelons • A production possibilities curve can show the number of watermelons grown affects the number of shoes made Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 6

Production Possibilities Curves • As the number of watermelons grown is increased, the number of shoes made will decrease • Growing more watermelons means less land can be used for building shoe factories • Likewise, if more shoes are being made, fewer resources can be used for growing watermelons Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 7

Law of Increasing Costs • The shift from making one item to making another can be expensive – this shift is known as the Law of Increasing Costs • As production shifts from one item to another, more resources are needed to make more of the second item • When production shifts from one item to another, the opportunity costs increase Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 8

Efficiency • Efficiency means an economy is using its resources to maximize the output of goods and services • In the example, efficiency would mean that the most watermelons and shoes possible are being produced Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 9

Production Possibilities Frontier • The line on the curve that shows the maximum possible output is called the production possibilities frontier • If factory workers and farmers lose their jobs, fewer shoes and watermelons will be produced • In this case, the economy would suffer from underutilization – using fewer resources that it is capable of using Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 10

Production Possibilities Frontier • In the future, a country’s resources may increase, making the economy grow • If more labor becomes available there will be more workers to produce more goods Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 11

Technology – Know How • Improvements in technology will also help the economy grow • This growth can be shown by a shift to the right of the production possibilities frontier Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 12

The Guiding Questions • Using what you have learned, answer the guiding question …… – How does a nation decide what and how much to produce? Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 13

Objectives 1. Interpret a production possibilities curve 2. Explain how production possibilities curves show efficiency, growth, and cost 3. Explain why a country’s production possibilities depend on its resources and technology Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 14

Introduction • How does a nation decide what and how to produce? – To decide what and how to produce, economists use a tool known as a production possibilities curve • This curve helps a nation’s economists determine the alternative ways of using that nation’s resources Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 15

Production Possibilities • Economists often use graphs to analyze the choices and trade-offs that people make • A production possibilities curve is a graph that shows alternative ways to use an economy’s productive resources – To draw a production possibilities curve, an economist begins by deciding which goods or services to examine Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 16

Production Possibilities Curve • The table below shows six different combinations of watermelons and shoes that Capeland could produce using all of its factor resources – How many watermelons can Capeland produce if they are making 9 million pairs of shoes? Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 17

Production Possibilities Frontier • The line on a production possibilities curve that shows the maximum possible output an economy can produce is called the production possibilities frontier – Each point on the production possibilities frontier reflects a trade-off. These trade-offs are necessary because factors of production are scarce – Using land, labor, and capital to make one product means that fewer resources are left to make something else Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 18

Efficiency • A production possibilities frontier represents an economy working at its most efficient level • Sometimes an economy works inefficiently and it uses fewer resources than it is capable of using. This is known as underutilization Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 19

Growth • A production possibilities curve can also show growth – When an economy grows, the curve shifts to the right – However, when an economy’s production capacity decreases, the economy slows and the curve shifts to the left Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 20

Cost • Production possibilities curves can be used to determine the opportunity costs involved in make an economic decision – Cost increases as production shifts from making one item to another – The law of increasing costs helps explain the production possibilities curve • As we move along the curve, we trade off more and more for less and less output Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 21

Law of Increasing Costs Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide

Technology and Education • Technology can increase a nation’s efficiency • Many governments spend money investing in new technology, education, and training for the workforce Chapter 1, Section 2 Copyright © Pearson Education, Inc. Slide 23