This document provides contact details for Nangati T. Marshal and an overview of a lecture on production possibilities and opportunity costs. It includes: 1) Contact information for Nangati T. Marshal including email and phone number. 2) An introduction to the production possibilities frontier (PPF) as a graph showing the maximum combinations of goods that can be produced with limited resources. 3) Assumptions made in the PPF model including fixed resources, technology, and time period.

1. FOR MORE INFO CONTACT DETAILS BELOW
Email: nangatimarshal@gmail.com
Call/ App: +263784923847
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CONTACT DETAILSCONTACT DETAILS

2. 2
LECTURE 1LECTURE 1
Production Possibilities
and Opportunity Costs
PowerPoint Slides prepared by
NANGATI T. MARSHAL
#INVINCIBLE ELITE MARSHAL)

3. 3
What is a Production
Possibilities Frontier (PPF)?
What is a Production
Possibilities Frontier (PPF)?
A graph that shows the
maximum combinations of
goods that can be produced
when resources and
technology are used efficiently

4. OR
A curve that shows the maximum
goods and services (full
production or full employment)
our economy can produce if it
utilizes all available resources
and technology fully and
efficiently in a given time
period.
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5. ASSUMPTIONSASSUMPTIONS
• Why make assumptions?
• Simplify complex situation
• Easy to understand by focusing on key variables of
interest while keeping all other background variables
constant. (Ceteris Paribus)
1. Maximum goods and services that can be produced
2. Two goods world.
3. Available resources are fixed and fully employed.
• land, labor, capital, management
Technology, education, and training is fixed.
4. One time period model.
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6. 6
For simplicity, lets take
a world with only 2
products
For simplicity, lets take
a world with only 2
products
Lets use military and
consumer goods.

7. 7
A typical PPF has the following shape:.
Consumer Goods
Military
The curve has a
negative slope.
The curve is
concave to the
origin.

8. 8
All points on the curve correspond to
full use of resources.
Consumer Goods
Militarygoods
A
B
All output combinations on
the PPC such as point A are
attainable and efficient;
although they are not
equally desirable.

9. 9
Points outside the the PPF are not
feasible with existing resources.
Consumer Goods
MilitaryGoods
.A

10. 10
Periods of unemployment or inefficiency in
production correspond to points under the
PPF.
Consumer Goods
Militarygoods
.A
Point A is
inefficient

11. MilitaryGoods
Consumer Goods
Production Possibilities CurveMilitaryGoods
A
efficient
C
Inefficient
• Unemployment
• Low capacity
utilization
D
unattainable

12. 12
Shape of the PPF? Why
Concave?
Shape of the PPF? Why
Concave?
If PPF is a straight line, we have
constant opportunity costs.
If PPF concave, we have
increasing opportunity
costs.Let us examine the
following:

13. Straight –line versus curved PPCs
A PPC can be either straight (A) or bowed outwards from the
origin (B).
A straight line PPC
• Indicates that the two goods require similar resources to
produce (like pizzas and calzones)
• The opportunity cost of one pizza is one calzone, so Italy
always gives up the same quantity of one good no mater
where it is on its PPC
A bowed out PPC
• Indicates that the two goods require very different resources
to produce (like pizzas and robots)
• As Italy increases its output of one good, the opportunity cost
(in terms of the quantity of the other good that must be given
up) increases.
(A)
(B)
The Law of Increasing Opportunity Cost:
As the output of one good increases, the opportunity cost
in terms of other goods tends to increase
The PPC

14. 14
Consider a straight line PPFConsider a straight line PPF
Beer
Pizza
Beer given up, the
opportunity cost,
remains constant

15. 15
Concave shape, increasing opportunity
costs.
Pizza
Beer Beer given up, the
opportunity cost, is
increasing

16. 16
What is the Law of
Increasing Costs?
What is the Law of
Increasing Costs?
The opportunity cost of
producing a good
increases as more of the
good is produced.Let us
look at an example

17. MilitaryGoodstanks
Consumer Goods (sail boats)
Production Possibilities Curve
20
40
60
80
100
5 10 15 20
A
B
C
E
D
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tanks boats
A 100 0
B 80 10
C 60 15
D 40 17
E 0 200

18. MilitaryGoodstanks
Consumer Goods (sail boats)
Production Possibilities Curve
20
40
60
80
100
5 10 15 20
A
B
C
E
D
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D to C
Loss Gain
2 boats 20 tanks
1 (cost) 10 m (benefit)

19. MilitaryGoodstanks
Consumer Goods (sail boats)
Production Possibilities Curve
20
40
60
80
100
5 10 15 20
A
B
C
E
D
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C to B
Loss Gain
5 boats 20 tanks
(1cost) 4 m (benefit)

20. MilitaryGoodstanks
Consumer Goods (sail boats)
Production Possibilities Curve
20
40
60
80
100
5 10 15 20
A
B
C
E
D
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B to A
Loss Gain
10 boats 20 tanks
1(cost): 2 (benefit)
Increasing
opportunity
costs. WHY?
D – C 1 : 10
C – B 1 : 4
B – A 1 : 2

21. SO.???SO.???
 As seen in the sail boats and tanks
example, as we attempted to produce
more tanks the opportunity costs
increased. Why?
 For every 1 additional tank we
produced we had to give up more and
more sail boats.
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22. 22
Why does the Law of
Increasing Opportunity
costs hold?
Why does the Law of
Increasing Opportunity
costs hold?
Because resources are not perfectly adaptable to all products
– Shows increasing opportunity cost
– If you try to produce more of one good the opportunity
cost increases by you having to give up more of another
good
– Diminishing returns
– Decreasing benefits
– Factor Unsuitability
– Resources are not equally efficient in producing both
goods.
– If the production possibility is in fact a straight line, then it
means that resources would be equally productive in both
goods.

23. In Essence……In Essence……
• The principle of increasing
marginal opportunity cost states
that opportunity costs increase the
more you concentrate on an
activity.
• In order to get more of something,
one must give up ever-increasing
quantities of something else
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24. 24
How do we have
more of everything?
By increasing our resources

25. 25
Economic growth indicates an increase in
the total output of an economy.Thus…
Consumer goods
Militarygoods
.A
The PPF shifts
to the right !

26. 26
Causes of rightward
shifts in PPF’s?
Causes of rightward
shifts in PPF’s?
 Economic growth.
 Increase in resources(For example migration
increases labour supply and discovery of oil
reserves increases the supply of natural
resources).
 Increased productivity.
 Improved technology-Discover of more efficient
means of production.A new technology could be
discovered that doubles the speed at which all
goods can be produced

27. 27
Can a PPF shift inward
(to the left)?
Can a PPF shift inward
(to the left)?
YES!! For just the
opposite reasons as an
outward shift such as a
loss of resources

28. Biased Technological Change
When the PPF pivotsWhen the PPF pivots
0
B
A
Butter
If a new technique or
technology is
developed for making
butter the PPF pivots
with production of guns
remaining constant
Guns
C

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Economic growth and the Capital
Consumer goods tradeoff:
Consumer goods
Capitalgoods
A
B
From which point would
an economy grow faster,
A or B?? Answer is A,
with more capital goods

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