AP Macroeconomics: Unit 1 - Module 3: The Production Possibilities Curve Model

Production Possibilities Curve

The _____ is a model which helps economists think about the trade-offs every economy faces.

efficiency, opportunity cost, economic growth

The production possibilities curve helps us understand three important aspects of the real economy: _____, _____, and _____.

Trade-off

A _____ is when you give something up in order to have something else.

Production Possibilities Curve

A _____ illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced.

feasible, efficient

If a point lies on the curve (A, B, or C), it is _____ and _____.

feasible, inefficient

If a point lies inside the curve (D), it is _____ but _____.

not feasible, inefficient

If a point lies outside the curve (E), it is _____ and _____.

axis

If a point lies on the _____, all resources could be spent dedicated to that point. However, there would not be any resources left to produce the other point lying on the axis.

efficient

An economy is _____ if there are no missed opportunities, meaning that there is no way to make some people better off without making other people worse off.

efficiently

When an economy is using all of its resources _____, the only way one person can be made better off is by rearranging the use of resources in such a way that the change makes someone else worse off.

Efficient in Production

An economy is _____ when an economy is producing at a point on its production curve.

Inefficient

An _____ economy is missing the opportunity to produce more of both goods.

produce more output if those people were employed

An example of inefficiency in production occurs when people in an economy are involuntarily unemployed; they want to work but are unable to find jobs. This economy is not efficient in production because it could _____.

employed

The production possibility curve shows the amount that can possibly be produced if all resources are fully _____.

efficient in allocation

Efficiency also requires that the economy allocate its resources so that consumers are as well off as possible. If an economy does this, we say that it is _____.

production, allocation

Efficiency for the economy as a whole requires both efficiency in _____ and efficiency in _____.

production possibilities curve

The _____ is also useful as a reminder that the true cost of any good is not only its price, but also everything else in addition to money that must be given up in order to get that good, the opportunity cost.

opportunity cost

The slope of a straight-line production possibilities curve is equal to the _____, specifically the cost for the good measured on the horizontal axis in terms of the good measured on the vertical axis.

increasing

In reality, opportunity costs are typically _____. Producing a small amount of goods has a smaller opportunity cost because it requires less resources, but producing more goods can give up a considerably large amount of other good output.

production possibilities

Economic growth is the expansion of the economy's _____. The economy can produce more of everything. It is an _____ shift of the production possibilities curve.

Economic growth

What is this shift called?

resources, technology

The two general sources of economic growth is an increase in the _____ used to produce goods and services (labor, land, capital, entrepreneurship) and progress in _____.

Technology

_____ is the technical means for the production of goods and services.