Starter
a) The use of production possibility frontiers to depict:

opportunity cost (through marginal analysis)

economic growth or decline

efficient or inefficient allocation of resources possible and unobtainable production
b) The distinction between movements along and shifts in production possibility curves, considering the possible causes
for such changes
c) The distinction between capital and consumer goods
d) The use of production possibility frontiers to depict the maximum productive potential of an economy
e) Consideration of actual vs. potential growth of an economy
A-Level Economics
Title: What is a production possibility
frontier?
• We will be able to explain opportunity cost
• We will be able to explain the different factors
of production as economic resources.
• We will be able to discuss and chart
production possibility frontiers.
Do you
work to live
or live to
work?
• Britons continue to work the longest hours in
Europe.
• According to the TUC, the UK working week has now
crept up to 43.5 hours – three hours longer than the
European average.
• More than four million full-time employees work
more than 48 hours a week (700,000 more than did
during the 1990s).
• One in six employees regularly clocks up more than
60 hours a week.
• It also found 5.26 million Britons work an average of
7.2 hours of unpaid overtime a week.
• Stress positively correlates with both depression and
coronary heart disease (Tennant, 2001, 2000).
What is the Opportunity Cost?
Key Term:
Why is this relevant?
Opportunity Cost
The cost of an activity expressed in terms of the
next best alternative, which has to be given up
when making the choice.
Production Possibility Curve
 This shows the maximum quantities of different combinations of output of two
products, given current resources and the state of technology
The data below shows the various production possibilities for an economy that produces two
goods, cars and television sets.
Cars
Televisions
1,000
0
800
400
600
800
400
1,200
200
1,600
0
2,000
a. Draw the above combinations of products on a graph. Put cars on the vertical axis and
televisions on the horizontal axis.
b. How many televisions can be produced when car production is 700? How does this change
when 550 cars are produced?
c. How does your diagram illustrate:
a. Choice
b. Scarcity?
Production possibility frontiers:
What is it all about?
Production possibility frontiers:
What is it all about?
• A production possibility
frontier (PPF) shows the
maximum possible
output combinations of
two goods or services an
economy can achieve
when all resources are
fully and efficiently
employed
What is a Production Possibilities
Frontier (PPF)?
A graph that shows the
maximum combinations of
goods that can be produced
when resources and
technology are used efficiently
12
For simplicity, lets take
a world with only 2
products
Lets use beer and
pizza (a typical
college campus?)
13
Beer
A typical PPF has the following shape:.
The curve has a
negative slope.
The curve is
concave to the
origin.
Pizza
14
Shape of the PPF? Why Concave?
If PPF a straight line, we have constant
opportunity costs
If PPF concave, we have increasing
opportunity costs
15
Consider a straight line PPF
Beer
Beer given up, the
opportunity cost,
remains constant
Pizza
16
Beer
Concave shape, increasing opportunity
costs.
Beer given up, the
opportunity cost, is
increasing
Pizza
17
What is the Law of
Increasing Costs?
The opportunity cost of producing a
good increases as more of the
good is produced
18
Why does the Law of Increasing
Opportunity costs hold?
Because resources are not perfectly
adaptable to all products
19
Beer
All points on the curve correspond to
full use of resources.
A
B
Pizza
20
Beer
Points outside the the PPF are not
feasible with existing resources.
.A
Pizza
21
Beer
Periods of unemployment or inefficiency in
production correspond to points under the
PPF.
.A
Pizza
22
What is the Law of
Increasing Costs?
The opportunity cost of producing a
good increases as more of the
good is produced
23
How do we have
more of everything?
By increasing our resources
25
Production Possibility Frontier
What could increase the PPF?
-  natural resources found
-  population (labour)
-  technology
-  infrastructure for production
Beer
Economic growth indicates an increase in
the total output of an economy.
The PPF shifts
to the right !
.A
Pizza
27
Can a PPF shift inward (to the
left)?
YES!! For just the opposite reasons
as an outward shift such as a loss
of resources
28
Capital goods
Economic growth and the Capital
Consumer goods tradeoff:
A
From which point would
an economy grow faster,
A or B?? Answer is A,
with more capital goods
B
Consumer goods
29