Transcript What is Economics

What is Economics
Chapter 1 Section 3
Production Possibilities Curve
http://www.reffonomics.com/TRB/chapter1/pppcurve.swf
http://www.reffonomics.com/TRB/chapter1/ppcurve1.swf
http://www.reffonomics.com/TRB/chapter1/ppcurve2.swf
http://www.reffonomics.com/TRB/chapter1/ppcurve3.swf
What is Economics – Section 2
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1. Present three examples that illustrate how all
decisions involve trade-offs?
2. Why must the opportunity cost of a decision
always be something desirable?
3. How do Economists use the phrase “guns and
butter”?
4. What does it mean to “think at the margin”?
What is Economics
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Objectives:
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Interpret a production possibilities curve.
Demonstrate how production possibilities curves
show efficiency, growth, and cost.
Understand that a country’s production
possibilities depend on its available
resources and technology.
What is Economics
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As the US entered World War II in 1941, the country
faced an urgent task: create the weapons and
equipment needed to win the war or face defeat.
Government agencies took the lead in switching the
output of America’s factories, farms, and mines from
the production of consumer goods to production of
military goods.
What is Economics
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Production Possibilities:
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Economists often use graphs to analyze the
choices and trade-offs that people make.
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WHY?????
What is Economics
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Production Possibilities:
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Graphs help us see how one value relates to
another value.
A production possibilities curve or graph shows
alternative ways to use an economy’s
resources.
The axes of the graphs can show the categories
of goods and services or capital goods and
consumer goods.
What is Economics
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Production Possibilities:
What is Economics
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Production Possibilities:
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To draw a production possibilities curve…
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You need to decide on the two goods that you want to
compare; Food (Butter) & Safety (Guns)
The line that goes from the vertical axis to the
horizontal axis is called the production
possibilities frontier.
This line shows the combinations of two goods that a
country can produce at any one time.
What is Economics
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Efficiency, Growth, and Cost:
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The PPF can show us how efficient a country is.
It can show whether an economy has grown or
shrunk
It can show the opportunity cost of a decision to
produce more of one good than another
good.
What is Economics
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Efficiency, Growth, and Cost:
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Efficiency:
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A PPF represents an economy working at its most
efficient level of production.
Efficiency means using resources in such a way as to
maximize the production or output of goods (or
services).
What is Economics
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Efficiency, Growth, and Cost:
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Sometimes, economies operate inefficiently.
If the factory laid off workers, they could not
produce as many goods (or services) as
before.
If the factory did not get their shipment of raw
materials into their factory, they could not
produce as much (products) as before.
In this case, they are operating inside the PPF
What is Economics
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Efficiency, Growth, and Cost:
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Any point inside the line indicates an
under-utilization of resources.
This means the country is using fewer resources
than the economy is capable of using.
What is Economics
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Efficiency, Growth, and Cost:
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Growth:
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A PPF reflects the country’s current production
possibilities as if the country’s resources were frozen
in time.
In the real world, the quantity of resources is
constantly changing (number of workers, etc).
New inventions can change the existing technology to
produce more goods (and services) at lower costs.
What is Economics
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Efficiency, Growth, and Cost:
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Cost:
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Cost is not necessarily money.
Cost is the alternative we give up when we choose one
option over the other.
We use the PPF to see the opportunity cost of
choosing to produce more of one good over another
good.
What is Economics
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Efficiency, Growth, and Cost:
Can a country ever move beyond the current
PPF curve?
What is Economics
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Production Possibilities:
YES they can.
BUT they have to do one of the following:
A. Increase their Technology
B. Add more Resources
At this point the country can produce beyond
the current PPF curve and move the curve
outward.
What is Economics
REVIEW:
1. How is underutilization depicted on a PPF
curve?
2. How does a PPF curve illustrate how
efficient an economy is?
3. How does a PPF curve illustrate
opportunity cost?
What is Economics
REVIEW:
1. Underutilization is shown by any point
inside the PPF curve.
2. A PPF curve show maximum possible
output along the PPF curve. If a country
produces along the curve, they
are
efficient.
What is Economics
REVIEW:
3. Opportunity cost can be illustrated by
comparing the data at various points on
the PPF.
As production of one element (good)
increases, the curve shows the decrease
in production of the other
element
(good).