JW

1.2 opportunity cost

What is the production possibilities curve?

production possibilities curve: a model that shows alternative ways that an economy can use its scarce resources

  • this model graphically demonstrates scarcity, trade-offs, opportunity costs, and efficient

4 key assumptions

  • only two goods can be produced

  • full employment of resources

  • fixed resources (ceteris paribus)

  • fixed technology

production “possibilities” table

A

B

C

D

E

14

12

9

5

0

bikes

0

2

4

6

8

computers

Each point represents a specific combination of goods that can be produced given full employment of resources

The production possibilities curve (or frontier)

constant vs. Increasing opportunity cost

shifting the production possibilities curve

3 shifters of the ppc

  1. change in resource quantity or quality

  2. change in technology

  3. change in trade (allows more consumption)

if you produce more capital goods you will be able to also produce more consumer goods, because, capital goods produce consumer goods

if the ability to produce not change there is no new line on the graph, but, what the people produce will change to the other thing