Chapter 1, Section 3, pp. 13-18
PRODUCTION POSSIBILITIES CURVES
Economists use graphs to analyze choices and
trade-offs
Graphs
another
help us see how one value relates to
PRODUCTION POSSIBILITIES CURVE
A graph that shows alternative ways to use an
economy’s productive resources
Each point on a production possibilities curve
shows efficient utilization of resources.
PRODUCTION POSSIBILITIES FRONTIER
The line on a production possibilities graph that
shows the maximum possible output
Represents an economy working at its most
efficient level of production
Efficiency
is using resources in such a way as to
maximize the production of goods and services.
UNDERUTILIZATION
Using fewer resources
than an economy is
capable of using
On a production
possibilities curve, a
point of underutilization
would appear below or
to the left of the
production possibilities
frontier.
GROWTH
A country's production
possibilities will grow if it
increases its resources.
OPPORTUNITY COST
Using the factors of
production to make one
product always means
that fewer resources are
left to make something
else.
The law of increasing
costs states that as we
shift factors of production
from making one good or
service to another, the
cost of producing the
second item increases.
RESOURCES AND TECHNOLOGY
A country's production possibilities depend on
both its available factor resources (land, labor,
and capital) and its technological level.