A PowerPoint on Production Possibilities Curves

1. Production Possibilities Curves

2. Production Possibilities
 A production possibilities curve, or graph, shows
alternative ways to use an economy’s productive
resources.
 The axes of the graph can show categories of goods,
or specific goods. (pg. 14)
 Depending on what an economist wants to look at.
 The line on a production possibilities graph is called
the production possibilities frontier. (pg.15)
 It shows the maximum amount possible to produce for each
product.

5. Production Possibilities (Cont.)
 Each spot along the production possibilities frontier
represents a trade-off that can be made.
 These trade-offs have to be made because land, labor, and
capital are scarce.
 If you use a resource to produce one product it can’t be used to
produce another product.
 Product possibilities graphs show us how efficient an
economy is, whether an economy has grown or
shrunk, and the opportunity cost to produce more of
one good or service.

6. Efficiency and Growth
 An economy is at its most efficient when it is
producing on the production possibilities frontier
line.
 How common is this?
 Any point inside the frontier is called underutilization.
 Economies can shrink or grow.
 Why is this?
 What would this do to the production possibilities frontier?

8. Cost
 When a company looks at their production
possibilities graph, cost plays a major role.
 What do they have to give up to make more of a certain good?
 At what part of the production possibilities frontier are they
most profitable?
 Law of Increasing Costs
 As production switches from one item to another, more and
more resources are required to produce the second item.
 This means the opportunity cost (cost) increases.
 This is why production possibilities frontier lines curve.
 Companies trade off more and more to produce less and less.

10. Resources and Technology
 Production possibilities graphs depend on the
resources and technology a country has at its
disposal.
 This can fluctuate based on a variety of things.
 What?
 Where do we stand in terms of resources and
technology?