Unit 1: Topic 2- Production Possibilities Graphs

Unit 1 Notes

Production Possibilities Graphs

Production Possibilities Graphs- Alternative ways to use resources. Show the most that society can produce if it uses very available resource to the best of its ability.

• PPG- Production Possibilities Graphs
• PPC- Curve
• PPF- Frontier

Six Key Assumption

1. Full Employment- 80-90% factory capacity. 4-5% unemployment (IDEAL) 💪 Reasons why full employment isn't going to happen;😞 never will happen, people are lazy, have no skills, won't work.)
2. Productive Efficiency 
3. Fixed Resources- Land, Labor, Capital, Entrepreneurship
4. Fixed State of Technology
5. No International Trade
6. Two Goods are Produced

                                                          Movements of the PPG

1. Inside of the curve- Any point on the inside
2. Along the curve- Moving along the curve. (Directional flow)
3. Shifts of the curve- Can be both on the inside and the outside.

Opportunity Cost- The next best alternative that you must give up in order to get something. (EX. Should i study for a test or should i go to a party?) Not your first choice. Form of trade-off.
 Law of Increasing Opportunity Cost- As you produce more of one good, the opportunity cost(the forgone production of another good) will increase. (HAVE TO BE PRODUCING ONE MORE THAN OTHER, CANNOT PRODUCE EQUALLY)

Concave vs. Constant PPG- 

                      Concave- Increasing at every level.

                      Constant- Straight line
 Productive Efficiency vs. Allocate Efficiency

Productive Efficiency- Products are being produced in the least costly way. Any point on the PPG.

Allocative Efficiency- The products being produced are the ones are the most desired by society.