The document discusses production possibilities frontiers and opportunity costs. It explains how fixed resources can be allocated between two production options, like wheat and cotton, with all possible production combinations falling along the frontier curve. As resources are reallocated between the options, the opportunity cost may remain constant if the goods are perfect substitutes, or increase if they are not perfect substitutes.

1. SCARCITY:
YOU AND NATIONS
Constructing a Production Possibilities Frontier

2. Production Possibilities
• Fixed Resources: Land, Labor, Technology
• Two Production options: Wheat or Cotton
• Possibilities:
How much
Wheat
How much
Cotton
All wheat 600 0
All cotton 0 200
Some of Both Any amount less
than 600
Any amount less
than 200

3. Make a picture
All Cotton

4. Possible Production Impossible Production
All possible
production points
Unattainable -
Cannot get here
with current
resources
Line is the
frontier

5. Understanding check:
• Which point(s) is
unattainable? ________
• Which point(s) shows
using all resources for
wool production? ____
• Which point(s) show
possible combinations of
wool and cotton? _____

6. Moving along the frontier
Cotton Wheat
A 600 0
B 300 100
C 0 200A
B
C
Cost
From A to B 300 cotton
From B to C 300 cotton
Constant Opportunity costs

7. Moving along a (different) frontier
Opportunity Cost
From A to B 50 Military Goods
From B to C 100 Military Goods
A
B
C
100
50
Increasing Opportunity Costs

8. Perfect Substitute Inputs
Constant opportunity costs
• Land-land, $-$, hours-hours
NOT-PERFECT Substitute Inputs
INCREASING opportunity costs
• Labor-capital, different skills

9. PPC for a country
Resources
• Land
• Labor
• Capital
• Entrepreneurship

10. PPC for a country
Decrease Resources
• Land
• Labor
• Capital
• Entrepreneurship

11. PPC for a country
Increase Resources
• Land
• Labor
• Capital
• Entrepreneurship

12. Check-In
On a whiteboard:
• Draw a PPF for a publishing firm that produces websites
and magazines (will it be straight or curved?)
• Draw a new line showing what happens if the firm
acquires new printing technology enabling them to print
magazines cheaper than ever before.