The document discusses the production possibilities frontier and economic efficiency. It explains that the production possibilities frontier shows the maximum possible production combinations for an economy given limited resources. It occurs at the frontier where an economy is using its resources efficiently to maximize production. Underutilization is the opposite of efficiency and happens when resources are not being fully utilized that the economy is capable of. Maintaining efficiency and avoiding underutilization is important because it ensures scarce resources are not being wasted.

1. Warm Up
» Watch the following video and complete
the handout on economic thinking.

2. 5
EQ:
What
is
the
Produc2on
Possibility
Fron2er
and
why
is
it
useful?

3. Producers have options. Should a
farmer grow corn or broccoli?

4. A Production Possibilities Graph
• A Production Possibilities Graph shows
alternative ways of using a country’s or
producer’s resources.
• If a farmer uses more of his land to grow corn,
he has less land for broccoli.
• Every decision has its cost.

5. What is the cost of producing more
automobiles?

6. Efficiency
• An economy is efficient when it uses resources
in such a way as to maximize production.
• Why is it important to be efficient?

7. Look at this graph. Where is efficiency
occurring?

8. Underutilization
• Underutilization is the opposite of
efficiency.
• Underutilization occurs when an economy
uses fewer resources than it is capable of
using.
• Why do producers avoid the
underutilization of resources?

9. Look at the graph. Where is
underutilization occurring?

10. The Production Possibilities Frontier
• The line on the graph that shows the maximum
possible production is called the production
possibilities frontier.
• At the frontier, efficiency is occurring.
• However, new technology can shift the frontier.
This is why entrepreneurs are so valuable as
they can increase the total capability of a
country’s economy.

11. Don’t Forget Scarcity
• However, a producer cannot produce
everything.
• A producer must make choices.
• Remember: It’s all about scarcity. Our
resources are limited but our wants and
desires are unlimited.

12. Things to remember
• What does a production possibilities graph
show?
• Define efficiency.
• Why is it important to be efficient?
• Define underutilization.
• What problems are created by
underutilization?
• What is the production possibilities
frontier?