Ms.

Lam Name: _________________________

CIA4U-U1-Ch1A-PPC
Date: __________________________

Ch.1-Assignment

Production Possibilities Curve

80
The concept of opportunity cost and associated tradeoffs may be illustrated with a picture.

Production Possibilities Curve – a graph that shows alternative ways to use an economy’s resources
– does not show consumer satisfaction. It is a model of a macro economy used to analyze the
production decisions in the economy and the problem ofscarcity.

Production Possibilities Frontier – the line on a production possibilities graph thatshows the
maximum possible output

Efficiency – using resources in such a way as to maximize the production of goods andservices

Underutilization – using fewer resources than an economy is capable of using

Cost – to an economist, the alternative that is given up because of a decision – the opportunity
cost

Sunk Cost – a cost that cannot be avoided because they have already been incurred

Growth – an economy wants to move the production possibilities curve to the right. It
can do so only with growth.

Reasons for Growth

1. Accumulation of capital
2. Technological advances
3. Increase in population – immigrants, birth rates increase
4. Available land or improvements to land

Reasons for Decline

1. Decrease in population –disease, catastrophe, war, birth rates decline
2. Loss of land – war or natural disaster
3. Decrease in production due to aging population, more uneducated population,
less healthy population

Page 1 of 12
Ms. Lam Name: _________________________
CIA4U-U1-Ch1A-PPC
Date: __________________________
Four Assumptions

1. Two Goods: Resources are used to produce one or both of only two goods. This
is a simplifying assumption that makes it easy to display production alternatives
using graphs. More than two goods could be analyzed using advanced
mathematics.
2. Fixed Resources: The quantities of land, labor, capital, and entrepreneurship
resources do not change. This is a reasonable assumption, but it can be relaxed
to analyze the consequences of changes in these resources.
3. Fixed Technology: The information and knowledge that society has about the
production of goods and services is fixed. This is another reasonable assumption
that can be relaxed to analyze the effects of technology changes.
4. Technical Efficiency: Resources are used in a technically efficient way. That
is, the maximum possible production is obtained from the resource inputs.

B
C

o Points on the PPC (Point C) show efficient use of resources – maximum

output. Full employment
o Points beyond the PPC (Point B) are not attainable given the resource
constraint – only after economic growth
o Points below the PPF (Point A) are feasible, but inefficient.
Unemployment

Slope of the line: Opportunity cost is indicated by the negative slope of the production
possibilities curve (or frontier). As more of one good is produced, less of the other goods
is produced. This production reduction is opportunity cost.

Curve of the line: The curve indicates that goods do not change in equal proportions.
As the production of one good goes up, the rate of the other decreases by an increasing
rate. This is the Law of Increasing Costs. Rarely there might be a straight line. This
means that production changes in equal proportions. As production for one product
increases, the other decreases at the same rate. The rate of change is constant. Examples:
black shoes vs. red shoes; sausage pizza vs. hamburger pizza; hours of study vs. hours of
work. Law of Increasing Costs does not apply to straight lines.

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Ms. Lam Name: _________________________
CIA4U-U1-Ch1A-PPC
Date: __________________________

PPC Practice
1. Jackie land is known for the production of Cupcakes and Robots. The following is a
PPT for Jackie land:

A B C D E F G H I J

Cupcakes: 0 2 6 10 14 18 22 26 28 30
Robots: 30 28 26 22 18 14 10 6 2 0

a. Draw and label (each axis and each point).

Put cupcakes on the Y

b. Indicate on the graph with Point K where inefficient is.

c. Indicate on graph with Point L where unattainable is

Note: points A → J indicate efficient uses of resources.

2. Draw a second Production Possibilities Graph with two frontiers.

a. Draw arrows to show growth

b. List reasons for growth:

3. Draw a second Production Possibilities Graph with two frontiers.

a. Draw arrows to show decline

b. List reasons for decline:

Page 3 of 12
Ms. Lam Name: _________________________
CIA4U-U1-Ch1A-PPC
Date: __________________________
4. A zoo cannot have everything it wants. It has to make choices. The zoo committeehas decided
that it can have several concession stands. It has to decide how many popcorn stands and how
many cotton candy stands to have scattered around the zoo. The committee made up a table of the
different combinations depending upon what the committee has determined to be the cost of each
stand. Now the committee has to decide what combination is right.

a. Use the table below to graph & label a Production Possibilities curve on the grid below

Popcorn or Cotton Candy Popcorn

Cotton Candy
Popcorn
0 10
1 9
2 7
3 4
4 0

Cotton Candy

b. Next, label a point of underutilization (inefficiency). Call it Point A, Next, label apoint of
efficiency. Call it Point B. Last, label a point that is now unattainable. Call it Point C.

c. Look at the table: To get one popcorn stand, how many cotton candy stands have to be
given up (marginal/opportunity cost)? 10 – 9 = ?

d. What is the marginal/opportunity cost of 3 popcorn stands?

e. What is the marginal/opportunity cost of 4 popcorn stands?

Page 4 of 12
Ms. Lam Name: _________________________
CIA4U-U1-Ch1A-PPC
Date: __________________________

5. Plot the following combinations of good X and good Y on the Good X Good Y
graph below.Plot all points and connect them with a smooth 37 0
curve. 34 10
30 17
Good Y 28 20
20 29
10 36
0 40

Good X

Answer the following questions:

a. Calculate the cost of increasing production of good X from 0 to 10 units, asmeasured

in the amount of good Y that would need to be sacrificed.

b. Calculate the cost of increasing production of good X from 10 to 20 units, asmeasured

in the amount of good Y that would need to be sacrificed.

c. Calculate the cost of increasing production of good X from 20 to 30 units, asmeasured

in the amount of good Y that would need to be sacrificed.

d. What happens to the opportunity cost as the production of good X increases?

Page 5 of 12
Ms. Lam Name: _________________________
CIA4U-U1-Ch1A-PPC
Date: __________________________

6. Plot the following combinations of bats and rackets produced by the AthleticCountry on
the graph below. Plot all points and connect them with a smoothcurve.
Bats Rackets
0 420
100 400
200 360
300 300
400 200
500 0

Answer the following questions:

a. If Athletic Country currently produces 100 bats and 400 rackets, what isthe
opportunity cost of an additional 100 bats?

b. If Athletic Country currently produces 300 bats and 300 rackets, what isthe
opportunity cost of an additional 100 bats?

c. Why does the additional production of 100 bats in number 2 above cause a greater
tradeoff than the additional production of 100 bats in number 1above?

d. Suppose the Athletic Country is producing 200 bats and 200 rackets. Howmany
additional bats could they produce without giving up any rackets? How many
additional rackets could they produce without giving up any bats?

e. Is the production of 200 bats and 200 rackets efficient? Explain.

Page 6 of 12
Ms. Lam Name: _________________________
CIA4U-U1-Ch1A-PPC
Date: __________________________
Shift in Production Possibilities Curve
Consumption goods
7. The production possibilities A
frontier (beside) shows the
available tradeoffs between
consumption goods and capital B
goods. Suppose two countries
facethis identical production
possibilities frontier.
Capital goods

Investment: This is indicated by a tradeoff between the production of consumergoods and capital
goods. Investment results if society moves along the production possibilities curve, producing more
capital goods and fewer consumption goods.

Answer the following questions.

a. Suppose Party Country chooses to produce at point A while Sleepy Country chooses to
produce at Point B. Which country will experience more growth inthe future? Why?

b. In this model, what is the opportunity of future growth?

Page 7 of 12
Ms. Lam Name: _________________________
CIA4U-U1-Ch1A-PPC
Date: __________________________

c. Demonstrate on the graph below the impact of growth on a production possibilities frontier
such as the one shown above. Would the frontier for SleepyCountry shift more or less than
that for Party Country? Why?
ConsumptionGoods

Capital Goods

d. On the graph below, show the shift in the production possibilities frontier if there was an
increase in technology that only affected the production of capitalgoods.

ConsumptionGoods

Capital Goods

e. Does the shift above imply that all production must be in the form of capital goods?

Page 8 of 12
Ms. Lam Name: _________________________
CIA4U-U1-Ch1A-PPC
Date: __________________________
8. Directions: Circle Micro or Macro. For Macroeconomic situations, label the
two axes as “Capital” & “Consumer” goods and services. For Microeconomic
situations, use the two trade-offs.
1. Before
2. After the change
a. Following a period of high
unemployment, the U. S.
enters the fighting of
World War II.
(Micro or Macro?)

b. Following a period of full- 1. Before

employment, the U. S. 2. After the change
accelerated the war in
Vietnam and the War on
Poverty.
(Micro or Macro?)

c. Following a period of 1. Before

discrimination against 2. After the change
women and minorities, the
U.S. legally ended such
discrimination in the work
place. (Micro or Macro?)

d. Following a period that

1. Before
allowed lumber companies
2. After the change
to log in publicly-owned land,
a law was passed to protect
the spotted owl’s habitat that
ended logging in the area.
(Micro or Macro?)

e. Before the Gulf War, Iraq

was a full-employment of 1. Before
2. After the change
their resources, but during
the war many of their facilities
were bombed and people
were killed.
(Micro or Macro?)

Page 9 of 12
Ms. Lam Name: _________________________
CIA4U-U1-Ch1A-PPC
Date: __________________________
f. Although citizens have been
1. Before
at full-employment for 2. After the change
almost a decade, our savings
rate has dropped from 6% to
0%.
(Micro or Macro?)

g. Following a period of full-

1. Before
employment of their resources, 2. After the change
Ethiopia experienced drought
and over farming of the land.
(Micro or Macro?)

h. Following a period of mild

recession, new developments
1. Before
in computer technology 2. After the change
caused many businesses to
invest in new computer
systems. (Micro or Macro?)

i. Following a period of full-

employment, credit card 1. Before
2. After the change
companies like MasterCard
extended lots of easy creditto
American buyers.

(Micro or Macro?)

j. Following a deep recession,the 1. Before

U.S. government beganan 2. After the change
expansion of the inter- state
highway system. (Micro or
Macro?)

k. You can use your time after

graduation to either work 1. Before
2. After the change
or go to college. You need
a new car so you decide to work
more and take just a class or two
this next year. You will fully use
your time.
(Micro or Macro?)

Page 10 of 12
Ms. Lam Name: _________________________
CIA4U-U1-Ch1A-PPC
Date: __________________________

9. Match each diagram with its description. Each can be used more
than once and each description has more than one answer. Assume that the
economy is attempting to produce at point A and that members of the society are
trying to get healthy and prefer orange juice over soda.

1. Inefficient production

2. Productive efficiency

3. An inefficient mix of output

4. Technological advances in the production of both

5. The law of increasing opportunity cost

6. An impossible production mix

Page 11 of 12
Ms. Lam Name: _________________________
CIA4U-U1-Ch1A-PPC
Date: __________________________
10. Divide the class into groups and assign each group one of these scenarios.
Then havethem read their scenario, draw answers on the board, and explain it
for review.

Version A
Using economic analysis and the Production Possibilities Curve, explain what happened
to the production of consumer goods and capital goods in 1968 when the U.S. increased
involvement in Vietnam. At the time of the escalation of the war, we were at full
employment and full production.

Version B
Using economic analysis and the Production Possibilities Curve, explain what happened
to the production of consumer goods and capital goods in 1929 when the U.S. fell deeply
into the Great Depression. Prior to that that time we had been at full employment and full
production. .

Version C
Using economic analysis and the Production Possibilities Curve, explain what happened
to the production of consumer goods and capital goods in 1941 when the U.S. entered
World War II. Prior to that time we had large amounts of unemployed resources. .

Version D
Using economic analysis and the Production Possibilities Curve, explain what happened
to the production of consumer goods and capital goods in Somalia when that country
became involved in a destructive Civil War. Prior to that time they had been fully
utilizing their resources.

Version E
Using economic analysis and the Production Possibilities Curve, explain what happened
to the production of consumer goods and capital goods in Mexico two years ago when
economic chaos occurred and many workers lost their jobs and factories were closed.
Prior to that time they already had 10% unemployment. Explain the short run and long
run consequences.

Version F
Using economic analysis and the Production Possibilities Curve, explain what happened
to the production of consumer goods and capital goods in Baytown in about 1984 after
U.S. Steel closed its Baytown plant and also many oil-related businesses went broke.
Prior to that time, we had been at full-employment, full production.

Version G
Using economic analysis and the Production Possibilities Curve, explain what happened
to the production of consumer goods and capital goods in the U.S. when new computer
technology caused productivity growth to increase significantly. Prior to that time the
U.S. had been in a recession and had been suffering from unemployment.

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