Macro Chapter 1- Presentation #2

Production Possibilities Table

• Lists the different combinations of two products that can be produced with a specific set of resources, assuming full-employment

Production Possibilities ModelProduction Possibilities Table

Type of Product

Pizzas (in hundred thousands)

Industrial Robots (in thousands)

Production Alternatives

A B C D E

10 9 7 4 0

0 1 2 3 4

Plot Points to Create Graph…

Production Possibilities Curve (PPC) or Production Possibilities Frontier (PPF)

• The graphical depiction of the PPC table showing the different combination of two goods that can be produced in a fully employed economy, assuming fixed availability of resources and constant technology

Production Possibilities

Pizzas

Ind

ust

rial

Ro

bo

ts

Under or Unemployment

0 1 2 3 4 5 6 7 8 9

14

13

12

11

10

9

8

7

6

5

4

3

2

1

Unattainable

A’

B’

C’

D’

E’

U

Shape of the PPC

• The curve is bowed out from the origin• As you move away from the origin, the

economy must give up more of the alternative

Law of Increasing Opportunity Cost

• The principle that as the production of a good increases, the opportunity cost of producing an additional unit increases

Increasing Opportunity Cost Explanation

• This is due to the fact that economic resources are not completely adaptable to alternative uses

• Ex- Some land is very good for farming. As more crops are grown, farmers have to use land less suitable for farming and more suitable for alternative use (which makes you give up more of the alternative)