In this unit on Production-Possibilities Curve/Frontier, you will
learn about the following:
learn about the following:
| Production-Possibilities Curve/Frontier, Part III |
Click on the on/off button on each graph below and then
read the information to the right of each graph to
understand the following concepts:
read the information to the right of each graph to
understand the following concepts:
TEST YOUR KNOWLEDGE:
Let's see if you understand everything you should
have learned up to this point. On the graph below
are situations that occur for Country A which can
produce either oranges or apples. You will answer
questions on whether you move a point on the graph
(inward, towards the PP curve, or along the PP curve)
or the entire curve on the graph (inward or outward).
Let's see if you understand everything you should
have learned up to this point. On the graph below
are situations that occur for Country A which can
produce either oranges or apples. You will answer
questions on whether you move a point on the graph
(inward, towards the PP curve, or along the PP curve)
or the entire curve on the graph (inward or outward).
In the above examples, you have seen what happens on the PPF graph when
there is a MOVEMENT from ONE POINT to ANOTHER POINT.
Now, you are going to look at WHAT SHIFTS THE PRODUCTION-POSSIBILITIES
CURVE OR FRONTIER (PPC OR PPF):
If the resources change or there is a change in the efficiency of the use of the
resources, then the entire production-possibilities frontier 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.
Click on the play button each graph below and then read the information to the
right of each graph to understand the following concepts:
there is a MOVEMENT from ONE POINT to ANOTHER POINT.
Now, you are going to look at WHAT SHIFTS THE PRODUCTION-POSSIBILITIES
CURVE OR FRONTIER (PPC OR PPF):
If the resources change or there is a change in the efficiency of the use of the
resources, then the entire production-possibilities frontier 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.
Click on the play button each graph below and then read the information to the
right of each graph to understand the following concepts:
Movement ON or ALONG THE CURVE:
Movement of a point ON the curve to ANOTHER POINT ON the curve
Movement of a point to the INSIDE of the curve
Movement of a point OUTSIDE the curve
Movement OF THE ENTIRE CURVE OUTWARD
Movement OF TVs OUTWARD
Movement OF ENTIRE CURVE INWARD
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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
A movement ON or ALONG the
curve indicates that the entity is
using its limited resources to its
most efficient extent. This is the
best the entity can do with its
available resources. It CANNOT
produce beyond its own
capabilities in the long run. Any
point on the curve represents
efficient utilization of resources.
curve indicates that the entity is
using its limited resources to its
most efficient extent. This is the
best the entity can do with its
available resources. It CANNOT
produce beyond its own
capabilities in the long run. Any
point on the curve represents
efficient utilization of resources.
TVs Computers
41 0
39 2
36 4
32 6
27 8
20 10
11 12
0 14
41 0
39 2
36 4
32 6
27 8
20 10
11 12
0 14
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
A movement from ONE POINT on
the curve to ANOTHER POINT on
the curve represents the
opportunity cost of producing a
good when resources are used to
their most efficient extent. When
going from one point to another
point on the curve, there is
always an opportunity cost,
shown in the table below in blue.
the curve to ANOTHER POINT on
the curve represents the
opportunity cost of producing a
good when resources are used to
their most efficient extent. When
going from one point to another
point on the curve, there is
always an opportunity cost,
shown in the table below in blue.
TVs Computers
41 0
39 2
36 4
32 6
27 8
20 10
11 12
0 14
41 0
39 2
36 4
32 6
27 8
20 10
11 12
0 14
A movement of a point to the INSIDE
of the curve indicates the resources
are NOT being used efficiently; they
are being used inefficiently. A point
inside also indicates a recession. A
point inside the PPF is the only place
where an entity can simultaneously
produce more of each good or service.
of the curve indicates the resources
are NOT being used efficiently; they
are being used inefficiently. A point
inside also indicates a recession. A
point inside the PPF is the only place
where an entity can simultaneously
produce more of each good or service.
TVs Computers
41 0
39 2
36 4
32 6
27 8
20 10
11 12
0 14
41 0
39 2
36 4
32 6
27 8
20 10
11 12
0 14
A movement of a point to the
OUTSIDE of the curve is
IMPOSSIBLE by the entity in the
long run. An entity can't use its
resources more efficiently than
efficient. It cannot produce (on
its own) any more than what is
shown ON the curve.
NOTE: It can get to a point
outside its own production
capabilities if it specializes and
trades.
OUTSIDE of the curve is
IMPOSSIBLE by the entity in the
long run. An entity can't use its
resources more efficiently than
efficient. It cannot produce (on
its own) any more than what is
shown ON the curve.
NOTE: It can get to a point
outside its own production
capabilities if it specializes and
trades.
TVs Computers
41 0
39 2
36 4
32 6
27 8
20 10
11 12
0 14
41 0
39 2
36 4
32 6
27 8
20 10
11 12
0 14
The reasons the PPF shifts
OUTWARD are:
1. An increase in the productive
labor force (productivity).
2. An increase in the quantity and
quality of natural resources.
3. An increase in the quantity and
quality of capital stock
(factories, equipment,
machinery, etc.)
4. An increase in health and
education.
5. An increase in technology.
NOTE: After the PPF shifts
OUTWARD, the entity produces
more units of goods at each point
on the new curve compared to the
original PPF.
OUTWARD are:
1. An increase in the productive
labor force (productivity).
2. An increase in the quantity and
quality of natural resources.
3. An increase in the quantity and
quality of capital stock
(factories, equipment,
machinery, etc.)
4. An increase in health and
education.
5. An increase in technology.
NOTE: After the PPF shifts
OUTWARD, the entity produces
more units of goods at each point
on the new curve compared to the
original PPF.
2
3
4
5
7
9
11
3
4
5
7
9
11
2
2
2
2
2
2
2
2
2
2
2
2
2
<
<
<
<
<
<
<
>
>
>
>
>
>
>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Notice to produce
an additional 4
computers, 12 TVs
are given up or to
produce 12 TVs, 4
computers are given
up.
an additional 4
computers, 12 TVs
are given up or to
produce 12 TVs, 4
computers are given
up.
}
}
12
4
Notice going from 11
TVs and 4 computers to
20 TVs and 6
computers there is a
simultaneous increase
in the production of
both, but is still
inefficient
because the point is
still inside the PPF.
TVs and 4 computers to
20 TVs and 6
computers there is a
simultaneous increase
in the production of
both, but is still
inefficient
because the point is
still inside the PPF.
}
}
2
9
Increase by:
Increase by:
The reasons the PPF shifts
OUTWARD for TVs are:
1. An increase in the productive
labor force (productivity) for
TVs.
2. An increase in the quantity
and quality of natural
resources for building TVs.
3. An increase in the quantity
and quality of capital stock
(factories, equipment,
machinery, etc.) for
producing TVs.
4. An advancement in health
and education of TV
production workers.
5. An increase in technology for
TVs.
OUTWARD for TVs are:
1. An increase in the productive
labor force (productivity) for
TVs.
2. An increase in the quantity
and quality of natural
resources for building TVs.
3. An increase in the quantity
and quality of capital stock
(factories, equipment,
machinery, etc.) for
producing TVs.
4. An advancement in health
and education of TV
production workers.
5. An increase in technology for
TVs.
The reasons the PPF shifts
OUTWARD for COMPUTERS are:
1. An increase in the productive
labor force (productivity) for
computers.
2. An increase in the quantity
and quality of natural
resources for building
computers.
3. An increase in the quantity
and quality of capital stock
(factories,equipment,
machinery, etc.) for
producing computers.
4. An advancement in health and
education of computer
production workers.
5. An increase in technology for
computers.
OUTWARD for COMPUTERS are:
1. An increase in the productive
labor force (productivity) for
computers.
2. An increase in the quantity
and quality of natural
resources for building
computers.
3. An increase in the quantity
and quality of capital stock
(factories,equipment,
machinery, etc.) for
producing computers.
4. An advancement in health and
education of computer
production workers.
5. An increase in technology for
computers.
The reasons the PPF shifts
INWARD are:
1. A decrease in the productive
labor force (productivity).
2. A decrease in the quantity and
quality of natural resources.
3. A decrease in the quantity and
quality of capital stock
(factories, equipment,
machinery, etc.).
4. A decrease in health and
education.
5. A decrease in technology.
NOTE: After the PPF shifts
INWARD, the entity produces
fewer units of goods at each
point on the new curve
compared to the original PPF.
INWARD are:
1. A decrease in the productive
labor force (productivity).
2. A decrease in the quantity and
quality of natural resources.
3. A decrease in the quantity and
quality of capital stock
(factories, equipment,
machinery, etc.).
4. A decrease in health and
education.
5. A decrease in technology.
NOTE: After the PPF shifts
INWARD, the entity produces
fewer units of goods at each
point on the new curve
compared to the original PPF.
NOTE: A point inside the PPF is the only point
where there can be ZERO opportunity cost, i.e.
4 Computers and 11 TVs to 4 Computers and 20
TVs--no Computers are given up.
where there can be ZERO opportunity cost, i.e.
4 Computers and 11 TVs to 4 Computers and 20
TVs--no Computers are given up.
Movement OF COMPUTERS OUTWARD
NOTE: There is no sound on the videos below. You must
read the information to understand what is happening in
the video.
read the information to understand what is happening in
the video.
Movements within the PPF graph:
*on the curve
*along the curve
*inside the curve
*inward shift of the curve
*outward shift of the curve
*on the curve
*along the curve
*inside the curve
*inward shift of the curve
*outward shift of the curve
In this unit on Production-Possibilities Curve/Frontier, you
learned about the following:
learned about the following:
Movements within the PPF graph:
*on the curve
*along the curve
*inside the curve
*outward shift of the curve
*inward shift of the curve
*on the curve
*along the curve
*inside the curve
*outward shift of the curve
*inward shift of the curve
| Steven M. Reff Economics Lecturer University of Arizona (2007 - 2016) The 2015 University of Arizona Five-Star Faculty Award |
Points on PPF or PPC (2:17 minutes)
Shifts in PPF or PPC (3:21 minutes)
Shifts in PPF or PPC (3:21 minutes)
Reffonomics.com 3 x 3 Videos (3-minute videos + 3 Multiple Choice Questions)
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Lecture on Absolute and Comparative Advantage (27:49 minutes)
Video Lectures for Week 2