Mr. Bernstein
Module 3: The Production Possibilities
Curve
September 11, 2014

AP Economics
Mr. Bernstein
• A very simple model can explain a lot
• Highlights the importance of trade-offs in economic analysis
• Helps us understand efficiency, opportunity cost, and economic growth
• There are two sources of economic growth increases in the availability of resources and improvements in technology
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AP Economics
Mr. Bernstein
The Production Possibilities Curve
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AP Economics
Mr. Bernstein
The Production Possibilities Curve
• Simplifying Assumptions
– Resources and Technology are Fixed at a point in time
– Economy produces only two goods
• Off the curve is Not Feasible or Feasible but inefficient
• On the curve is feasible and efficient
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AP Economics
Mr. Bernstein
The Production Possibilities Curve
• A linear PPC means Opportunity Costs are constant
• Example: Pizzas vs Bulldozers. At every level of production, the tradeoff in # of pizzas per bulldozer is the same
• But not all pizzas and not all bulldozers are created at the same cost. Why?
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AP Economics
Mr. Bernstein
The Production Possibilities Curve
• Concave due to “Law of increasing opportunity costs”
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AP Economics
Mr. Bernstein
Economic Growth
• Expansion of an economy’s production possibilities
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