PRODUCTION
POSSIBILITIES
CURVES
PRODUCTION POSSIBILITIES


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Production Possibilities Curve- (graph)
shows alternative ways to use an economy’s
productive resources.
The axes of the graph can show categories of
goods and services. (farm goods and factory
goods)
The axes can also show any pair of specific goods
or services. (hamburgers and hotdogs).
Production Possibilities Curve
Shoes (in millions of pairs)
25
20
(15,0)
15
All Shoes, No
Watermelons
10
5
0
0
5
10
15
Watermelons (in millions of tons)
20
25
Production Possibilities Curve
Shoes (in millions of pairs)
25
20
15
10
All Watermelons,
No Shoes
5
(21,0)
0
0
5
10
15
Watermelons (in millions of tons)
20
25
Watermelons
(Millions of
Tons)
Shoes (Millions
of Pairs)
0
8
14
18
20
15
14
12
9
5
Production of Watermelons and Shoes
Shoes (in millions of pairs)
Production Possibilities Curve
25
20
A. (15,0)
B. (8,14)
15
C. (14,12)
D. (18,9)
10
E. (20,5)
5
F. (21,0)
0
0
5
10
15
Watermelons (in millions of tons)
20
25
PRODUCTION POSSIBILITIES CURVE
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

Production Possibilities Frontier- The line
we draw that shows combinations of the
production of our goods or services.
ANY POINT ON THAT LINE REPRESENTS A
POINT AT WHICH THE COMPANY IS USING
ALL OF ITS RESOURCES TO PRODUCE A
MAXIMUM COMBINATION OF THOSE TWO
PRODUCTS.
Represents an economy working at its most
efficient level of production.


Efficiency- using resources in such a way as to
maximize the production of goods and services.
Moving along the line represents a trade off
between the two goods or services.
UNDERUTILIZATION
Underutilization- using fewer resources than the
economy is capable of using.
Shoes (in millions of pairs)
Production Possibilities Curve
25
Future Production
Possibilities Frontier
20
15
10
Underutilization
5
0
0
5
10
15
20
Watermelons (in millions of tons)
25
PRODUCTION POSSIBILITIES FRONTIER
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
New Technology, more immigrants, more labor,
economy growing, or the supply of labor or capital
increases—shifts the frontier to the right.
Population ages, lose land in war, people become
unhealthy or uneducated, or a decrease in capital
or labor would shift the curve left.
PRODUCTION POSSIBILITIES
Cost: The alternative we give up when we choose
one option over the other. (OPPORTUNITY
COST)
 Law of Increasing Costs: As the production
switches from one item to another (shoes to
watermelons), more and more resources are
necessary to increase production of the second
item (watermelons).
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Therefore… the opportunity cost increases!
WHY?!
Countries must look at their resources and
technology to decide what to produce.