production possibilities curve - micro 1.3

point inside the curve

inefficient

a model graphically demonstrates…

scarcity, trade-offs, opportunity cost, efficiency

step 1 for use of econ model

explain concept in words

step 2 of econ model

use numbers as examples

step 3 for use of econ model

generate graph from numbers

step 4 for use of econ model

make generalizations using graphs

3 key assumptions

1. only 2 goods can be produced at once

2. full employment of resources

3. fixed resources; things don’t change

increasing opportunity cost

resources are very different and there is a curve

constant opportunity cost

• resources to produce are very different

• when you produce one to lose the same amount as the others

the law of increasing opportunity cost

when all the resources are being used, an increase in the production of one good will lead to the greater forgone production of another good