Production Possibilities Curve What to produce in what

Production Possibilities Curve What to produce. . . in what amount?

What Goods to Produce? n Economists look at this question and create what is known as the Production Possibility Curve or Frontier

4 Assumptions n • • Featuring the following simplifying assumptions… a society that produces only two goods the efficient use and full employment of resources fixed technology a single snapshot in time

Production Possibilities Curve Peanuts How many Oranges are being produced at this point? At this Point What is Being Produced in Greater Quantity? Why does the Production of these two products follow a curve? Important to realize that • It is bowed to take denote production canout also place increasing coststhe curve. anywhere within Representation of production at its most efficient Oranges

Production Possibilities Curve Peanuts Why would the curve shift inward? • Problems with Labor • Loss of Land Resources • Machinery Breaks Down UNDERUTILIZATION When the economy/business uses less resources than the economy is capable of using it experiences… Oranges

Production Possibilities Curve Why would the curve shift outward? Peanuts • Increase in the Amount or Future Production Possibilities Frontier Quality of Resources • More Labor (Population) • Increased Productivity from Labor • New or Better Resources • New or Better Capital • Better Education or Health of Labor • Technological Advancement Oranges

Production Possibilities Graph 25 0 15 8 14 14 12 18 9 20 5 21 0 Shoes (millions of pairs) Watermelons Shoes (millions of tons) (millions of pairs) 20 15 10 5 0 a (0, 15) b (8, 14) c (14, 12) d (18, 9) A production possibilities frontier e (20, 5) f (21, 0) 5 10 15 20 25 Watermelons (millions of tons)

Events that can expand production possibilities outward… • • • A technological advance • rail cars • refrigeration • computers An increase in human or natural resources • population increase • new discoveries Capital investment • new factories • new infrastructure