production possibilities. warm up what was the opportunity cost of coming to school this morning?...

PRODUCTION POSSiBILITIES

WARM UP

What was the opportunity cost of

coming to school this morning? What is

the opportunity cost of writing your

warm up right now?

OBJECTIVE

• Demonstrate how a

production possibilities curve

is used to identify opportunity

costs.

ESSENTIAL QUESTION

• How do societies and businesses

decide where to allocate their

financial resources? What is the total

economic cost of producing a certain

good?

REVIEW

WHAT IS OPPORTUNITY COST?

A: The total cost

B: How much something costs

C: The value of the next best

alternative

• What is economic cost?

A. Opportunity cost plus actual cost

B. How much something costs

C. Opportunity cost

TERM• PRODUCTION POSSIBILITIES

FRONTIER:

A diagram representing various

combinations of goods and/or services

an economy can produce when all

productive resources are fully

employed

ACTIVITY: YOU ARE THE PRODUCERS

• Need resources– Land• Raw materials – paper (from trees)

– Labor• You will be the workers!

– Capital• Desk• Scissors

• Each producer has the same resources

8• Read instructions– Cut out the strip along its side borders– Cut the strip into 5 squares, using remaining

solid lines– Decide whether you want to cut any of the

squares into triangles, using the dotted lines• You may cut some of the squares, or • All of the squares, or • None of the squares

• But only cut along the dotted lines shown.

• Any questions? • Begin . . .

Production Possibility Schedule

• Did anyone produce only triangles?

How many triangles did you produce?

• 10

How many squares were you able to produce?

• 0

Did anyone produce 8 triangles?

How many squares did you produce?

• 1

Production Possibility Schedule

• Possibilities, #sq, # triangle, opportunity cost per sq

A 0 10

B 1 8 2

C 2 6 2

D 3 4 2

E 4 2 2

F 5 0 2 =

constant opportunity cost, 2

PLOT THE GRAPHY

• Triangle on the ‘y’, squares on the ‘x’

• This is the production possibilities frontier

• So: what is the cost of 1 triangle? (1/2 a

square)

• Look at points within the frontier…could

they happen? What about outside the

frontier?

• Assumptions of PPF:

• - all resources are used – full

employment

• - max production possible – frontier

• efficient use of resources

ACTIVITY:

• Coconuts or carrots, slide 34-43

• Worker 1: 1 apple, 7 banana

• Worker 2: 1 apple, 10 banana

• Worker 3: 1 apple, 15 banana

• Worker 4, 1 apple, 20 bananas

Let’s make a new graph

DOL

• L.1: Define the production

possibilities frontier

• L.2: Explain the connection between

the production possibilities frontier

and opportunity costs.