Hey, how you doing Econ students? This is Mr. Clifford. Welcome to ACDC Econ.
Right now you're learning about the first graph in this class. It's called the Production Possibilities Curve. The Production Possibilities Curve presents potential prospects for the production of a pair of products.
It's a pillar of the program and pupils have to practice. This graph is totally important. First, we're going to start off with a table that shows the production possibilities of two goods. In this case, videos and hats. And this example is actually for me.
If I quit teaching, I spent all my time, I could make hats, right? Using this loom, hats that look like this. Basically, you wrap the yarn around this and it can wrap around itself and the hat kind of grows out from the bottom.
You kind of tie it off to the end. As you can see from the chart, if I spent all my time working on hats, I could produce 30 hats in a week. Yo, what's up, bro?
If I spent all my time and resources making econ videos, I could make four videos. But as you can see, I wouldn't be able to make any hats. So this chart shows my production possibilities.
It shows me the different combinations of hats and videos that I could make using all of my resources. To get the graph, we just have to plot these points. And that's gonna give us a graph that looks like this.
This is the production possibilities curve, or sometimes called the production possibilities frontier. The best part about this graph is the fact that it shows all the key concepts that you've been learning so far. It's gonna show scarcity, trade-offs, opportunity costs, and efficiency.
It shows the idea of scarcity because it shows that I cannot produce anywhere beyond the curve. So the curve or the frontier shows the idea that I have limited resources. The graph shows trade-offs because if I decide to start producing videos, I have to give up hats.
Or if I produce hats, I have to give up videos. Opportunity cost is shown by the specific number of hats I give up when I make a video. For example, when I move from combination A to combination B, I'm producing more videos, but I'm also losing hats.
The number of hats I lost is the opportunity cost. In this case producing the first video cost me one half. This graph shows efficiency because if I'm producing a point right here where I'm producing only two videos and five hats I am inefficient. This is because I'm not using all of my resources the fullest. I'm not somewhere on the actual curve.
So any combination inside the curve is inefficient because because I could produce there, but I don't want to. I can produce more of both goods. That means the line itself must be the idea of efficiency. If I'm producing any one of these combinations, I'm using all my resources to the fullest. And again, a point here outside the curve is impossible because I don't have enough resources to get there.
But the curve can shift. But wait for it, that comes later. Right now it's time for you to practice calculating opportunity costs.
So I want you to use the table and figure out the opportunity costs from each one of these. So calculate the opportunity costs from A to D. to B to C, from E to D, and from C to A.
Remember, opportunity cost is what we're giving up, and so look for the thing that we're losing. Don't forget to clarify if I'm giving up hats or if I'm giving up videos. The opportunity cost from A to D is 15 hats.
Notice, from... Combination A, we're producing zero videos and 30 hats. Now, when we go over here to D, we're going to have three videos and we're going to have 15 hats. That means we lost 15 hats. That's the opportunity cost.
The opportunity cost from combination B to C is four hats. The opportunity cost from E to D is one video and the opportunity cost from combination C to combination A is two videos. Now it's super important to be able to calculate opportunity cost, but we're not done. Let's do different examples. So in this case, let's do corn and wheat and let's do cactus and pineapple.
It turns out that the shape of the curve is very important. So this top one shows a constant opportunity cost between corn and wheat. This is because the resources that produce corn and wheat, the ground, the climate, are very similar. So you... produce a certain amount of wheat, you give up a certain amount of corn.
And when you produce that same amount of wheat, you give up the same amount of corn. That shows constant opportunity cost. But down here, when it comes to cactus and pineapples, when you produce the very first pineapple, you give up just a little bit of cactus.
When you produce the next pineapple, you give up even more. The next one, even more. And the last one, a whole lot of cactus you give up.
This is called increasing opportunity cost. It's because the resources, the land and climate to produce pineapples and cactus are completely different. But the plural of cactuses is cacti. So when we first start producing pineapples, we're going to give up just a little bit of cacti.
This is because we're going to use the land that's more suited towards pineapples, and it's not very good at producing cacti, and so we're going to lose a little bit of cacti and get a good amount of pineapples. Now, as we keep doing that over and over again, we're going to give up more and more cacti. This is because we're using resources that are less and less suited towards pineapples, until finally, right here, we're producing just a little bit more pineapples, but giving up a whole lot of cacti. And this is the idea of the law of increasing opportunity cost. The law says as you produce anything, the opportunity cost to produce it is going to get bigger and bigger.
And that explains the shape of the graph. Remember, a straight line production possibilities curve like this shows constant opportunity cost. And a bowed out curve shows the idea of increasing opportunity cost. Now, if you like this video, make sure to subscribe.
And you can learn more about the production possibilities curve and how it shifts by clicking on this video. Or you can go look at Unit 1 videos by clicking right here. Now, make sure to come back to the channel because I'm making...
making a ton of new videos this year, all right? Till next time. The production possibilities curve...
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