A production possibilities graph shows the maximum amounts of two goods an economy can produce given limited resources. It demonstrates efficiency by showing production on the frontier curve, and inefficiency within. An economy's possibilities depend on available resources and technology. Underutilization occurs when resources are not fully used, such as during a labor shortage or war, while growth comes from more resources, exports, technology or land.

1. Production Possibilities Graphs March 16, 2011

2. Objectives Explain what a production possibilities graph shows. Demonstrate how PPG show efficiency, growth, and cost. Understand that a country’s production possibilities depend on its available resources and technology.

3. The Production-Possibilities Frontier (page 13)

4. Production-Possibilities Schedule Letter Comb. Farm Products Manufact. Products D C A B E 15 14 11 5 0 0 5 15 25 30

5. Draw the following Production Possibilities Frontier

6. 15 12 9 6 3 5 10 15 20 25 30 Farm Prod Manufactued Products (in Millions) Production Possibilities Frontier B A X Y ( underutilization) + 10M - 6M

7. Why does underutilization occur? A country is not using all of the factors of production, or not being very efficient. This could be caused by several factors.

8. Factors that can lead to underutilization at point X. Decrease in labor force. Loss of natural resources. Country is devastated by war.

9. Factors that could lead to point Y or economic growth. Increases in labor force. Supplies other countries with much needed supplies (increase in exports) Increases in technology. Newly acquired land and markets.

10. Homework…. page 11, 1-4,6,9. page 18 1-3,5-7