THE PRODUCTION
POSSIBILITIES CURVE!
OH, THE POSSIBILITIES!
8/20 Intro - How does a nation and the
businesses within decide what and how
much to produce?
PRODUCTION POSSIBILITIES CURVE
• Resources are scarce and in order to best allocate
those resources, you can utilize a production
possibilities curve.
GUNS OR BUTTER!
• Theoretical
Economy
with only 2
goods.
• How much
of each
good to
produce?
COSTS
• Check the board!
• What is the cost of producing 6 Giant Robot
Warriors when you’ve previously been producing
only 4?
• This is your opportunity cost.
• Constant v. Increasing
SO HOW DOES THIS WORK IN REAL LIFE?
• Outsourcing jobs to cheaper places.
• Vietnam – Taking over Nissan manufacturing end of
the automobile industry.
• Auto engineers in Vietnam are paid around
$200/month, only 1/10th of what their counterparts
make in Japan.
• Why are auto makers moving high-skilled jobs into
low-cost markets?
• How might production and quality control be
compromised if Nissan designs cars in Vietnam?
LAW OF INCREASING COSTS
• Real World, P. 17
• As you shift from producing one thing to another, more
and more resources are needed to increase production
of the second thing.
• You can’t magically shift production without incurring
costs.
• Same goes with life decisions. Changing Majors.
• Switching from Art History to World History = Constant Costs
• Switching from Art History to Mech. Engineering = Increasing
costs
APPLICATION
• How does a nation decide what and how much to
produce?
• What are the trade-offs when deciding to focus on
one product or service over another?
• The web to the right gives a general overview of
Production Possibilities Curves.
EXIT QUESTION!
• How does the law of increasing
costs play a role in your life?