Unit 1 - Production Possibility Graphs

PPG/PPC/PPF

• Alternate ways to use resources
• Each point on the graph reflects a point
• Also shows the most that society can produce if it uses every available resource to the best of its ability
• Key Assumptions:
• Full employment - everyone has a job
• America is not fully employed b/c of:
• Lazy people
• Early retirement -- baby boomers
• Disabled people
• 80-90% factory capacity; 4-5% unemployment
• Productive efficincy
• Fixed resources:
• Land
• Labor
• Capital
• Fixed state of technology
• No international trade
• Two goods produced

• Inside of the Curve
• attainable, but inefficient; underutilization
• unemployment
• underemployment
• war
• famine
• depression/recession
• Point D
• On the Curve
• attainable and efficient
• Point A (more resources used to produce pizza than sugar)
• Point B (use of resources divided equally to produce pizza and sugar)
• Point C (more resources used to produce sugar than pizza)
• Outside of the Curve
• unattainable
• technology
• economic growth
• Point E

Movements of the PPG

1. Inside of the Curve 
   
2. Along the Curve 
   
3. Shifts of the Curve 
   

• Opportunity Cost - the next best alternative that you must give up in order to get what you want
• Law of Increasing Opportunity Cost - as you produce more of one good, the opportunity cost (forgone production of another good) will increase

Concave vs. Constant PPG

  

      Concave - bowed out                                                                                                      Constant - the same

Productive Efficiency vs. Allocative Efficiency

• Productive Efficiency - products are being produced in the least costly way

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