AP Macroeconomics 1.2 The Product Possibilities Curve/Opportunity Cost

Any point inside a production possibilities curve is

associated with inefficient use or unemployment of some resources

Product Possibilities Curve

graph representing all possible combinations of goods and/or services an economy can produce when all productive resources are fully employed

If a certain combination of goods or services lies outside the production possibilities curve of an economy

Resources are not available to achieve that combination of goods or services.

A production possibilities curve that is concave to the origin (bowed out) implies that as more of a good is produced, the opportunity cost

increases

Constant Opportunity Cost

An opportunity cost that remains the same as consumers shift purchases from one product to another along a straight-line budget line.

increasing opportunity cost

a situation in which producing more of one good requires giving up an increasing amount of production of another good resulting in a bowed out(concave) PPC

What is always true of an economy operating on its production possibilities frontier?

Its resources are fully employed

When an economy producing two goods is operating efficiently and at full employment, increasing the production of one good will result in

a decrease in the amount of the other good that can be produced

An economy that is operating inside its production possibilities curve

can increase the production of both goods, is inefficient,unemployment

What would shift a country's production possibilities curve inward?

A reduction in the size of the country's labor force

A shift in the PPC outwards could mean...

economic growth

Which concepts can be illustrated using the production possibilities curve?

Choice,Scarcity, and Opportunity Cost

inward shift of PPF

reflects economic decline(loss of resources)

3 Shifters of the PPC

1. change in resource quantity or quality

2. change in technology

3. change in the labor force

4 assumptions of Production Possibilities Curve (PPC)

1. Only two goods can be produced

2. Full employment of resources

3. Fixed Resources (Ceteris Paribus)

4. Fixed Technology

What does it mean if an economy that is operating inside its production possibilities curve?

It can increase the production of both goods