The Production Possibilities Frontier (PPF) in Economics

How does an economist think about the things that get made?

SWBAT apply economic thinking to explain how people decide what to make or produce.

Scarcity means that you have to make choices – and incur costs

• National economies have limited resources to produce goods to sell on the market

• These limited resources could be labor, materials or even modes of production

• The science of economics has a tool for choosing between the production of two goods during a certain period of time called the production possibilities frontier (PPF)

Food vs. Bombs: An Example

A nation could analyze its potential food production compared to its production of weapons of mass destruction in an attempt to answer the question: how can we maximize our resources?

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The Opportunity Cost for 1500 WMDs is 40,000 pounds of food.

Poll

Which do you prefer – yeast donuts or cake donuts?

• Um, what's the difference? Who's buying?

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If Jeremy makes 36 cake donuts per hour, how many yeast donuts could he produce?

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What's the opportunity cost of 36 cake donuts in yeast donuts? 

Multiple Choice

A PPF shows...

• The best combination of goods to produce

• What can be produced with various combinations of resources

• The plans for increasing output in the short run

• Resources are constrained by choices

Multiple Choice

Which of the following are assumptions underlying the PPF?

• All of the above

• Technology, population, and capital are variable

• Prices determine the position on the PPC

• Only two goods are produced

Multiple Choice

Efficiency along the PPF curve implies...

• To get more of a good, some of another must be given up

• Goods are produced quickly

• The state of technology is maximized

• Goods are distributed equitably