In this unit on Production-Possibilities Curve/Frontier you
will learn about the following:

*What is Opportunity Cost?
*What is a Constant Cost Production-Possibilities Graph
 (Linear)?
*What is Increasing Cost Production-Possibilities Graph  
 (Concaved to the Origin)?
*What is Absolute Advantage?
*What is Comparative Advantage?
*What is Specialization?
*What is Considered to be a Good Terms of Trade?
Production-Possibilities Curve/Frontier
The Production-Possibilities Curve/Frontier
describes the concept of opportunity cost at
several levels.  We will start by looking at an
orchard where you have a choice of planting
either an apple tree or an orange tree.  If you plant
an apple tree in one spot, you cannot plant an
orange tree in that same spot.  So the opportunity
cost of an apple tree is an orange tree.  
From the examples above, you saw that you cannot plant
an apple tree where an orange tree is growing.  To plant
an apple tree, you must give up planting an orange tree
and visa versa.  So the opportunity cost of one orange
tree is one apple tree.  This is an example of a Constant
Cost Production-Possibilities Frontier/Curve.   

However, let's say that you can plant two apple trees
where only one orange tree can grow.  Then the
opportunity cost of one orange tree = two apple trees.  It
can also be stated that the opportunity cost of one apple
tree = 1/2 orange tree.
If the resources change or there is a change in the
efficiency of the use of the resources, then the entire
production-possibilities curve SHIFTS.

If you can remember the following five changes in
resources, then you can determine that the production
possibilities curve has also changed.  

1.  Change in the productive labor force (productivity).
2.  Change in the quantity and quality of natural  
      resources.
3.  Change in the quantity and quality of capital stock  
     (factories, equipment, machinery, etc.)
4.  Change in health and education.
5.  Change in technology.

So a change in any above, shifts the
production-possibilities frontier/curve outward.  
On the table below take your cursor or finger and
click on the number of apple trees first to see what
the opportunity cost is in the number of orange
trees that must be given up.  Then do the same
thing in the orange tree column to see how many
apple trees must be given up (opportunity cost).
TEST YOUR KNOWLEDGE:

Using the table below, drag the correct terms
located inside the yellow rectangle to the correct
column's green rectangle.  If you do it correctly,
your term sticks to the correct column.  If not,
the term bounces back to the terms' column.
What is Opportunity Cost?
What is a Constant Cost Production-Possibilities Graph
(Linear)?
What is an Increasing-Cost Production-Possibilities Graph
(Bowed Outward)?
Wherever there are increasing costs, the
production-possibilities frontier/curve is bowed out from
the origin.  Moving either way up or down the axes, the
cost of moving from one point on the curve to another
point on the curve is increasing.  Looking at the two
increasing cost production-possibilities frontiers below,
click on the next button to understand the concept of
increasing costs.
Steven M. Reff
Economics Lecturer
University of Arizona
(2007 - 2016)
The 2015 University of Arizona
Five-Star Faculty Award
Long-run Economic Growth Occurs When the PPF Shifts
Outward.
Each apple tree produces 10 apples and each orange tree
produces 10 oranges.  Follow the directions below the graph.
You have just seen if resources are fixed (in this
case--land), then you can operate either ON the
production-possibilities curve if you are at full
potential (using the resource of land as EFFICIENTLY
as possible) or INSIDE the production-possibilities
curve if you are BELOW full potential (using the
resource of land INEFFICIENTLY).  You have also
learned that you cannot get to a point OUTSIDE the
production-possibilities curve with the fixed amount
of resources (land, in this case) at this particular
point in time.
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Textbook Reading from Voices on the Economy by Russell Cooper, European
University Institute and Andrew John, Melbourne Business School (Chapter 5.4,
Production Possibilities)
Textbook Reading for Week 2
Lecture 4:  Absolute and Comparative Advantage  (11:41 minutes)
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Video Lectures for Week 2
Reffonomics.com 3 x 3 Videos (3-minute videos + 3 Multiple Choice Questions)
Production-Possibilities Frontier (Constant vs. Increasing Costs) (3:00 minutes)
Production-Possibilities Frontier (Points on the Graph) (2:17 minutes)
Production-Possibilities Frontier (Absolute and Comparative Advantage (2:58 minutes)
Lecture 3:  No Sound Lecture on Absolute and Comparative Advantage  (4 minutes)
Production-Possibilities Frontier (Correctly Drawn Graph) 4:12 minutes
Full
Screen
In this unit, RB2:  Production-Possibilities
Curve/Frontier, you have learned about the
following:

*Opportunity Cost
*Constant Cost Production-Possibilities Graph  
 (Linear)
*Increasing Cost Production-Possibilities Graph
 (Concaved to the Origin)
*Absolute Advantage
*Comparative Advantage
*Specialization
*Terms of Trade
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DIRECTIONS:

Using the information below the graphs, show the correct answer on the
graph to the left by dragging the A or B dots or the entire curve.  When you
are finished doing that, draw your answers on the graph to the right.
TEST YOUR KNOWLEDGE:

1.  Efficient Use of Resources
2.  Unattainable on Your Own
3.  Inefficient Use of Resources
4.  Simultaneous increase in Both X & Y
5.  To produce one efficiently, you give up
     more of the other
6.  Specialization and Trade
7.  Efficient & Simultaneous decrease in X & Y
8.  Inefficient and Increase production of only
     Good Y
9.  Efficient and Decrease production of only  
     Good X
Again, the examples above show a Constant Cost
Production-Possibilities Frontier or Curve.