Unit 1 Lesson 1 9 Production Possibilities Frontier
Unit 1 - Lesson 1. 9 Production Possibilities Frontier
Lesson Objectives • Review Opportunity Cost and Trade Offs • Describe Production Possibilities • Demonstrate Production Possibilities using a curve 17 August 2015 http: //www. maritimeexecutive. com/media/transfer/img/2008_2 fjul_2 f 27_2 fp anama_canal 1. jpg 2
Opportunity Cost must be factored in when making decisions. For example: Decision to be Made I have 3 hours in the evening. I should be doing my homework but I want to play video games. Choice #1 Opportunity Cost (what you are giving up) Play Video Games for 3 hours and getting further on in your favourite game Doing Homework for 3 hours and being more prepared for the next class 17 August 2015 3
Opportunity Cost BUT You weigh only your NEXT BEST DECISION and determine which has the highest cost. Choice Opportunity Cost Doing Homework for 3 hours Play Video Games for 3 hours and getting further on in your favourite game Is the opportunity cost higher than your choice? You are satisfied with your current grades and plan to get ahead on your homework during study period. You really want to continue to progress in your game. Therefore, you believe the cost of playing the video game is higher than studying and potentially getting a better assessment in your class. 17 August 2015 4
Opportunity Cost – Paired Activity Consider a 5 hour timeframe on the weekend. Brainstorm all the things that you could do for the entire time. With your partner, choose the top two (2) activities and write down all the possible combinations they can distribute their time to between the two options. Create a chart in your notes to show the possible combinations. Partial Example: Homework Video Games 0 Hours 3 Hours 1 Hour 2 Hours 17 August 2015 5
Production Possibilities Another effective way of to see Opportunity Cost in action is to create a PRODUCTION POSSIBILITIES FRONTIER (PPF). A PPF is an ECONOMIC MODEL that visually shows the opportunity cost in an economy’s decision to produce goods & services. Take a moment and create a graph that reflects the two choices you and your partner have just discussed. The xaxis will reflect hours spent on option #1, the y-axis will reflect the hours spent on option #2. Graph all the potential possibilities you created in your chart from the 17 August 2015 6 previous activity.
Production Possibilities On the next slide we will see a number of interesting points on the PPF: PRODUCTION EFFICIENCY PRODUCTION INEFFICIENCY OPPORTUNITY COST *Make sure to mark these points on your own PPF in your notes* 17 August 2015 7
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Production Possibilities All the points on the frontier Production Efficiency Each point means we are producing goods and services at the lowest possible cost. All points INSIDE the frontier. Production Inefficiency This can be due to unused or misallocated resources or both All points on the frontier cannot happen. Trade-offs 17 August 2015 One must choose one point which means a trade-off of all the other possibilities. 9
Production Possibilities We can see OPPORTUNITY COST rising as the number of pizzas produced are increased. The more pizza we produce, even more colas are given up as we move from one decision point or possibility to the next. , RISE, OR Opportunity cost can remain CONSTANT FALL depending on the outcomes of each possibility. 17 August 2015 10
Production Possibilities ECONOMIC GROWTH It occurs when one can push or extend the PPF outward. This occurs due to two reasons: TECHNOLOGICAL CHANGE CAPITAL ACCUMULATION 17 August 2015 11
Production Possibilities Technological Change • Development of new goods • Better ways of producing goods and services Capital Accumulation • Growth of capital resources • Growth of human resources 17 August 2015 12
Review • • • Key Points from Lesson Opportunity Cost Production Possibilities Frontier as an economic model Production Efficiency and Inefficiency Trade-offs Economic Growth 17 August 2015 Homework / Assignment • Read pages 40 to 41 from ECONOMICS EDITION 6. • Using the reading, add to your class notes. • Complete the PPF practice Worksheet 13
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