Unit 1: Basic
Economic Concepts
1
REVIEW
1. Explain relationship between scarcity and choices
2. Differentiate between consumer and capital goods
3. Give examples of each of the 4 Factors of
Production
4. Define tradeoffs
5. Define opportunity cost
6. Name 10 different teachers at THS?
2
WE HAVE A PROBLEM!!
The Economizing Problem…
Scarcity
Society has unlimited wants but unlimited resources
3
The Production
Possibilities Curve
(PPC)
4
What is the Production Possibilities Curve?
• A production possibilities graph (PPG) is a
model that shows alternative ways that an
economy can use its scarce resources
• This model graphically demonstrates scarcity,
trade-offs, opportunity costs, and efficiency.
•
•
•
•
4 Key Assumptions
Only two goods can be produced
Full employment of resources
Fixed Resources
Fixed Technology
5
Production “Possibilities” Table
Bikes
Computers
A
14
0
B
12
2
C
9
4
D
5
6
E
0
8
f
0
10
Each point represents a specific
combination of goods that can be
produced given full employment of
resources.
NOW GRAPH IT: Put bikes on y-axis and
computers on x-axis
6
Production Possibilities
How does the PPG graphically demonstrates scarcity,
trade-offs, opportunity costs, and efficiency?
Impossible/Unattainable
14
(given current resources)
A
B
12
Bikes
G
C
10
8
Efficient
D
6
Inefficient/
Unemployment
4
2
E
0
0
2
4
6
8
10
Computers
7
Opportunity Cost
Example:
1. The opportunity cost of
moving from a to b is… 2 Bikes
2.The opportunity cost of
moving from b to d is… 7 Bikes
3.The opportunity cost of
moving from d to b is… 4 Computer
4.The opportunity cost of
moving from f to c is… 0 Computers
5.What can you say about point G?
Unattainable
8
The Production Possibilities
Curve (or Frontier)
9
The Production Possibilities
Curve and Efficiency
10
Shifting the Production
Possibilities Curve
11
Production Possibilities
What if there is a change?
3 Shifters of the PPC
1. Change in resource quantity or quality
2. Change in Technology
3. Change in Trade
12
Robots
Production Possibilities
What happens if
there is an increase
in population?
Pizzas
13
Robots
Production Possibilities
What happens if
there is an increase
in population?
Pizzas
14
Production Possibilities
Robots
What if there is a
technology improvement
in pizza ovens
Pizzas
15
Production Possibilities
Robots
What if there is a
technology improvement
in pizza ovens
Pizzas
16
PPC Practice
Draw a PPC showing changes for each of the
following:
Pizza and Robots (3)
1. New robot making technology
2. Mad cow disease kills 85% of cows
Consumer goods and Capital Goods (4)
3. Destruction of power plants leads to severe
electricity shortage
4. Faster computer hardware
5. Many workers unemployed
6. Significant increases in education
17
Question #1
New robot making technology
Q
Robots
A shift only for Robots
Q
Pizzas
18
Question #2
Mad cow disease kills 85% of cows
Robots
Q
A shift inward only for
Pizza
Q
Pizzas
19
Question #3
Capital Goods (Guns)
Q
Destruction of power plants leads to
severe electricity shortage
Decrease in resources
decrease production
possibilities for both
Q
Consumer Goods (Butter)
20
Question #4
Faster computer hardware
Capital Goods (Guns)
Q
Quality of a resource
improves shifting the
curve outward
Q
Consumer Goods (Butter)
21
Question #5
Many workers unemployed
Capital Goods (Guns)
Q
The curve doesn’t shift!
Unemployment is just a
point inside the curve
Q
Consumer Goods (Butter)
22
Question #6
Significant increases in education
Capital Goods (Guns)
Q
The quality of labor is
improved. Curve shifts
outward.
Q
Consumer Goods (Butter)
23