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					                  1-11-10
“Stop thinking in terms of limitations and
  start thinking in terms of possibilities”
- Terry Josephson

What would you like to accomplish this
 year?
Why do graphs show information
more clearly than texts or tables?
      Production Possibilities
Economists use graphs to analyze the
  choices and trade offs people make.
Production Possibilities curve shows
  alternative ways to use the economy’s
  productive resources.

Lets looks at some Possibilities
                                                                      Step 1
                                                  Graph A                                                                 Graph B
                            25                                                                         25
                                      no watermelons,
Shoes (millions of pairs)




                                                                           Shoes (millions of pairs)
                                     all possible shoes
                            20                                                                         20

                            15                                                                         15
                                 a (0,15)

                            10                                                                         10                       no shoes, all
                                                                                                                                  possible
                                                                                                                                watermelons
                            5                                                                          5

                                                                                                                                                f (21,0)


                                 0       5        10      15   20     25                                    0      5      10      15       20        25

                                     Watermelons (millions of tons)                                             Watermelons (millions of tons)
                               Step 2
                                                                                Plot and label the points.
                                                                                This is the production
 Watermelons                Shoes                                               possibilities curve.
(millions of tons)   (millions of pairs)
                                                                       25
        0                   15




                                           Shoes (millions of pairs)
                                                                       20
        8                   14
                                                                       15
       14                   12
                                                                       10

       18                    9
                                                                       5

       20                    5
                                                                            0      5      10      15     20      25
       21                    0
                                                                                Watermelons (millions of tons)
                                            Step 3
                                                                           The curve will move
                                                                           to the right if more
                            25                                             land, labor or capital
                                                                           resources become
Shoes (millions of pairs)

                            20                                             available.

                            15
                                                                           Each time a shift
                                                                           in production
                            10
                                                                           takes place, cost
                                                                           occurs.
                            5
                                                                           What is the cost in
                                                                           shoes when we
                                                                           move from 20 to
                                 0      5      10      15     20      25   21 million tons of
                                                                           watermelon?
                                     Watermelons (millions of tons)
       Your Turn to Graph

Hot Dogs   Bicycles

100        0

90         4

75         8

50         12

0          16
     Law of Increasing Costs
• Shifting the factors of production to
  produce a different item requires
  increasingly more resources to produce
  more of the new item, therefore
  opportunity costs increase.
• This explains why the line curves
Chapter 1, Section 3 Quiz
  Match the Term with its definition
1. Underutilization          a. Shifting the factors of
                                production to produce a
                                different item requires
2. Efficiency
                                increasingly more
                                resources to produce
3. Law of Increasing Costs      more of the new item
                             b. an economy that is not
                                using all its resources
                             c. an economy that is
                                using all of its resources
                                to produce the
                                maximum output of
                                goods and services
4. A production possibilities curve shows the
   relationship between the production of
a.   Farm goods and factory goods.
b.   Two types of farm goods.
c.   Two types of factory goods.
d.   Any two categories of goods.
5. The line on a production possibilities
    curve showing the relative amounts of
    two types of goods processed using all
    resources is called the


a.   production possibilities frontier.
b.   opportunity cost line.
c.   utilization of resources.
d.   maximum possible production line.
6. Increasing the number of laborers in an
    economy generally causes a(n)
a. increase in the production possibilities
    curve.
b. decrease in the production possibilities
    curve.
c. increase in the opportunity cost of
    production.
d. decrease in the opportunity cost of
    production.
7. The law of increasing costs means that as
    production shifts from one item to
    another,
a. the cost of production gets cheaper and
    cheaper.
b. the cost of producing an item stays the
    same no matter how many are produced.
c. more and more resources are necessary
    to increase production of the second
    item.
d. the land costs of increasing production
    rise much more steeply than do the labor
    costs.
8. An economy that is NOT using all of its
  resources to gain the maximum possible
  production is

                      c. growing
a. efficient
b. underutilized      d. trading off
9. The curve usually seen in a production
    possibilities frontier can be explained by
a. growth in the economy.
b. underutilization of resources.
c. increasing an economy’s efficiency.
d. the law of increasing costs.
  10. An economy that is producing the maximum
   amount of goods and services is considered

a. efficient             c. growing

b. underutilized         d. trading off
  Match the Term with its definition
1. Underutilization          a. Shifting the factors of
                                production to produce a
                                different item requires
2. Efficiency
                                increasingly more
                                resources to produce
3. Law of Increasing Costs      more of the new item
                             b. an economy that is not
                                using all its resources
                             c. an economy that is
                                using all of its resources
                                to produce the
                                maximum output of
                                goods and services
4. A production possibilities curve shows the
   relationship between the production of
a.   Farm goods and factory goods.
b.   Two types of farm goods.
c.   Two types of factory goods.
d.   Any two categories of goods.
5. The line on a production possibilities
    curve showing the relative amounts of
    two types of goods processed using all
    resources is called the


a.   production possibilities frontier.
b.   opportunity cost line.
c.   utilization of resources.
d.   maximum possible production line.
6. Increasing the number of laborers in an
    economy generally causes a(n)
a. increase in the production possibilities
    curve.
b. decrease in the production possibilities
    curve.
c. increase in the opportunity cost of
    production.
d. decrease in the opportunity cost of
    production.
7. The law of increasing costs means that as
    production shifts from one item to
    another,
a. the cost of production gets cheaper and
    cheaper.
b. the cost of producing an item stays the
    same no matter how many are produced.
c. more and more resources are necessary
    to increase production of the second
    item.
d. the land costs of increasing production
    rise much more steeply than do the labor
    costs.
8. An economy that is NOT using all of its
  resources to gain the maximum possible
  production is

                      c. growing
a. efficient
b. underutilized      d. trading off
9. The curve usually seen in a production
    possibilities frontier can be explained by
a. growth in the economy.
b. underutilization of resources.
c. increasing an economy’s efficiency.
d. the law of increasing costs.
  10. An economy that is producing the maximum
   amount of goods and services is considered

a. efficient             c. growing

b. underutilized         d. trading off

				
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