Production Possibilities Curve Hypothetical Production Schedule Point Units

Production Possibilities Curve Hypothetical Production Schedule Point Units of Butter Units of Guns A 15 0 B 14 1 C 12 2 D 9 3 E 5 4 F 0 5 The Production Possibilities Frontier (PPF) measures the quantity of two goods that an economy or business is capable of producing with its current available resources and technology Copyright 2002 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 2 -20

Production Possibilities Cur Had to give up 1 unit of butter Hypothetical Production Schedule Point Units of Butter Units of Guns A 15 0 B 14 1 C 12 2 D 9 3 E 5 4 F 0 5 In this particular instance, the opportunity cost of gaining one unit of guns was one unit of butter To gain 1 unit of Guns When you are on the line (PPF), to get more of one thing you have to give up some of the other thing Copyright 2002 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 2 -21

Production Possibilities Cur Had to give up 2 units of butter Hypothetical Production Schedule Point Units of Butter Units of Guns A 15 0 B 14 1 C 12 2 D 9 3 E 5 4 F 0 5 In this particular instance, the opportunity cost of gaining one unit of guns was two units of butter To gain 1 unit of Guns When you are on the line (PPF), to get more of one thing you have to give up some of the other thing Copyright 2002 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 2 -22

Production Possibilities Cur Had to give up 3 units of butter Hypothetical Production Schedule Point Units of Butter Units of Guns A 15 0 B 14 1 C 12 2 D 9 3 E 5 4 F 0 5 In this particular instance, the opportunity cost of gaining one unit of guns was three units of butter To gain 1 unit of Guns When you are on the line (PPF), to get more of one thing you have to give up some of the other thing Copyright 2002 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 2 -23

Production Possibilities Cur Had to give up 4 units of butter Hypothetical Production Schedule Point Units of Butter Units of Guns A 15 0 B 14 1 C 12 2 D 9 3 E 5 4 F 0 5 In this particular instance, the opportunity cost of gaining one unit of guns was four units of butter To gain 1 unit of Guns When you are on the line (PPF), to get more of one thing you have to give up some of the other thing Copyright 2002 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 2 -24

Production Possibilities Cur Had to give up 5 units of butter Hypothetical Production Schedule Point Units of Butter Units of Guns A 15 0 B 14 1 C 12 2 D 9 3 E 5 4 F 0 5 In this particular instance, the opportunity cost of gaining one unit of guns was five units of butter To gain 1 unit of Guns When you are on the line (PPF), to get more of one thing you have to give up some of the other thing Copyright 2002 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 2 -25

When you are on the line (PPF), to get more of one thing you have to give up some of the other thing. If you were at point G, it would be possible to move to point D or any other point on the line (PPF) and get more butter and more guns. When you are at a point that is inside the line (PPF) it is possible to get more of both. G Copyright 2002 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 2 -26

Points Inside and Outside the Production Possibilities Curve Frontier Point W represents output at more than full employment and is currently unattainable Where we usually are A Recession A Depression Every point on the curve represents output at Full Employment & Productive Efficiency Every point inside the curve represents output at less than Full employment Only one point on the curve represents the point of Allocative Efficiency Copyright 2002 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 2 -27

Production Possibilities Curves A move from PPC to PPC represents economic growth 1 2

Production Possibilities Curves Over Time. Country B Country A represents slower economic growth than Country B Country A capital goods is 3. 8 units Country B represents much faster economic growth than Country A Country B capital goods is 7. 0 units Copyright 2002 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 2 -34