Trade Offs and Opportunity Cost

What is Economic Growth? The curve shows that in order to get more of one product, the economy must give up some amount of the other product by shifting available resources. It can be used to illustrate a number of economic concepts such as scarcity of resources, opportunity costs, productive efficency, allocation efficiency, and economies of scale. To learn more, visit our Earning Credit Page Transferring credit to the school of your choice Not sure what college you want to attend yet? Instead, a portion of the available resources can be dedicated to one product and the remainder to the other.

Illustrate by means of a production possibilities curve the trade offs between two options. Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.

What Causes a Movement Along the Demand Curve?

Factors of production - land, labor, capital and entrepreneurship. Opportunity cost - A benefit, profit, or value of something that must be given up to acquire or achieve something else.

Allocation - to set aside funds for a specific purpose Objective 1. The production possibilities curve is a hypothetical representation of the amount of two different goods that can be obtained by shifting resources from the production of one, to the production of the other.

It is a curve depicting all maximum output possibilities for two or more goods given a set of inputs. The ppc assumes that all inputs are used efficiently, economy is at full production, and economy is at full employment. Objective 2 Ppc is a graphical representation of the alternative combinations of the amounts of two goods or services that an economy can produce by transferring resources from one good or service to the other.

The graph shows the various amounts of two commodities that an economy can produce, using a fixed of each of the factors of production.

The graph also show the maximum possible production level of one commodity for any given production level of the other, given the existing state of technology. Objective 3 This model is used to explain economic growth and efficiency for an economy. It can be used to illustrate a number of economic concepts such as scarcity of resources, opportunity costs, productive efficency, allocation efficiency, and economies of scale. Students have learned how to define and illustrate by means of production possibilities curve the trade-offs between two options.

Students have lrned to understand a PPC graph 3. Students know why this model is used Questions? More presentations by rajahda washington Project Adhjar. During any particular time period, a society cannot be outside of its production possibility curve, but over time the curve can shift, as resources expand as the labor force increases, for instance , and new technology is developed.

The new curve further from the origin indicates that more goods and services can be produced, and thus consumed. By definition this shift in the curve represents increased economic growth. The production possibility curve can be viewed as a useful tool to demonstrate the concepts of opportunity cost, and the law of increasing cost.

It also protrays the underlying condition of scarcity and unlimited wants, that are paramount for neoclassical economics. The underlying scarce resources determine the limits of the production output, and thus consumption. Movement of the curve outward is seen as an unambiguous good, which can fill those unlimited wants by increasing consumption.

A society's rational choice, usually seen as a market solution, can be defined as a choice of one of the production possibility points on the curve. Page 11 Problems Trade-Offs Individuals, businesses, and society all make trade-offs.

If you spend more time at work, you give up time at a baseball game. A manufacturer who decides to use all her resources to make laptops eliminates the possibility of desktop computers at the same time. A country's classic example is guns or butter. If steel is used for weaponry, it cannot be used for equipment to make butter. What was the choice and what was the trade-off? You will need to take notes to turn in! Thinking at the margin Many decisions involve adding one more unit or subtracting one unit, such as one minute or one dollar.

When you decide how much more or less to do, you are thinking at the margin. Deciding by thinking at the margin is just like any other decision. You must compare the opportunity costs and the benefits. What will you sacrifice? What will you gain?

Production Possibility Curve

illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity produced of the other. The curve on the graph is the production possibilities curve or frontier which shows the maximum combination of houses and software programs we are capable of producing. The PPC has a bowed . Illustrate by means of a production possibilities curve the trade offs between two options. 2 b. Explain that rational decisions occur when the marginal benefits of .