PRODUCTION POSSiBILITIES

WARM UP

What was the opportunity cost of

coming to school this morning? What is

the opportunity cost of writing your

warm up right now?

OBJECTIVE

• Demonstrate how a

production possibilities curve

is used to identify opportunity

costs.

ESSENTIAL QUESTION

• How do societies and businesses

decide where to allocate their

financial resources? What is the total

economic cost of producing a certain

good?

REVIEW

WHAT IS OPPORTUNITY COST?

A: The total cost

B: How much something costs

C: The value of the next best

alternative

• What is economic cost?

A. Opportunity cost plus actual cost

B. How much something costs

C. Opportunity cost

TERM• PRODUCTION POSSIBILITIES

FRONTIER:

A diagram representing various

combinations of goods and/or services

an economy can produce when all

productive resources are fully

employed

ACTIVITY: YOU ARE THE PRODUCERS

• Need resources– Land• Raw materials – paper (from trees)

– Labor• You will be the workers!

– Capital• Desk• Scissors

• Each producer has the same resources

8• Read instructions– Cut out the strip along its side borders– Cut the strip into 5 squares, using remaining

solid lines– Decide whether you want to cut any of the

squares into triangles, using the dotted lines• You may cut some of the squares, or • All of the squares, or • None of the squares

• But only cut along the dotted lines shown.

• Any questions? • Begin . . .

Production Possibility Schedule

• Did anyone produce only triangles?

How many triangles did you produce?

• 10

How many squares were you able to produce?

• 0

Did anyone produce 8 triangles?

How many squares did you produce?

• 1

Production Possibility Schedule

• Possibilities, #sq, # triangle, opportunity cost per sq

A 0 10

B 1 8 2

C 2 6 2

D 3 4 2

E 4 2 2

F 5 0 2 =

constant opportunity cost, 2

PLOT THE GRAPHY

• Triangle on the ‘y’, squares on the ‘x’

• This is the production possibilities frontier

• So: what is the cost of 1 triangle? (1/2 a

square)

• Look at points within the frontier…could

they happen? What about outside the

frontier?

• Assumptions of PPF:

• - all resources are used – full

employment

• - max production possible – frontier

• efficient use of resources

ACTIVITY:

• Coconuts or carrots, slide 34-43

• Worker 1: 1 apple, 7 banana

• Worker 2: 1 apple, 10 banana

• Worker 3: 1 apple, 15 banana

• Worker 4, 1 apple, 20 bananas

Let’s make a new graph

DOL

• L.1: Define the production

possibilities frontier

• L.2: Explain the connection between

the production possibilities frontier

and opportunity costs.