Overview
This lecture introduces the production possibilities curve (PPC) in economics, covering key concepts like scarcity, efficiency, trade-offs, and opportunity cost, and explaining how economic growth shifts the PPC.
The Production Possibilities Curve (PPC)
- The PPC graph shows all possible combinations of two goods that can be produced using all resources.
- Points on the curve represent efficient use of resources; inside the curve is inefficient; outside is unattainable with current resources.
- The PPC illustrates scarcity, meaning resources are limited and not all combinations can be produced.
Efficiency, Inefficiency, and Trade-Offs
- Producing on the curve means full, efficient use of resources; producing inside means under-utilizing resources.
- Trade-offs occur because producing more of one good requires producing less of another due to scarcity.
Opportunity Cost
- Opportunity cost is the amount of one good given up to produce more of another good.
- With constant opportunity cost, the PPC is a straight line; each unit produced always costs the same in terms of the other good.
- With increasing opportunity cost, the PPC is bowed out; producing additional units costs more and more of the other good.
Shifts in the PPC and Economic Growth
- The PPC shifts outward if resources increase or technology improves, allowing more of both goods to be produced.
- Economic growth is shown as an outward shift, representing an increased production capacity.
Application to the Economy
- Points inside the PPC represent unemployment (not all resources used).
- Points on the PPC represent full employment (all resources used efficiently).
- Points outside the PPC are unattainable unless resources or technology improve.
Key Terms & Definitions
- Production Possibilities Curve (PPC) — a graph showing combinations of two goods that can be produced using all resources.
- Trade-off — giving up one good to produce more of another.
- Opportunity Cost — the value of the next best alternative given up when making a choice.
- Efficiency — using all available resources so that increasing the production of one good requires decreasing the production of another.
- Economic Growth — an increase in output shown by an outward shift of the PPC.
Action Items / Next Steps
- Practice drawing and interpreting PPC graphs with different opportunity costs.
- Complete review packet and worksheets linked in the video description.
- Answer the pop quiz questions and check the answer key in the comments.