Goal: Construct and use the
Production Possibilities Curve
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Economic Model- is a simplified representation of
economic forces
Production Possibilities Curve(PPC) - is a graph used to
illustrate the impact of scarcity on an economy.
4 Things that simplify the PPC model
1. Resources are fixed: There is no way to increase the
availability of land, labor, capital, or entrepreneurship
2. All resources are fully employed: There is no waste of
any of the factors of production.
3. Only two things can be produced: Economy only makes
two goods or services. Makes graphing easier
4. Technology is fixed: There is no technology
improvements
Example:
PPC can work a large economy or a very small economy
PPC Per 8 Page 1
PPC can work a large economy or a very small economy
Small Economy: Soup Kitchen
-Have ingredients to produce 2 things: Bread or Muffins
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What does the PPC tell us?
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1. Any point on the curve represents efficiency.
Efficiency- involves producing the maximum amount
of goods and services possible with the resources
given.
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2. Any point inside the curve represents underutilization.
Underutilization-means the economy is producing
fewer goods and services than possible
3. Any point outside the curve is a production
impossibility. Because of scarcity it is not possible to
produce at any point outside of the curve, there is
limited resources.
4. Law of Increasing Opportunity Costs
-states that you will have to give up an increasing
amount of one product, to be able increase the
PPC Per 8 Page 3
amount of one product, to be able increase the
production of the other product.
Exit Question: What do the three points represent?
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