# Production Possibilities Curve

### EDUCATOR'S VERSION

Posted December 15, 2011

Standards: 1, 2, 3, 15

Posted: December 15, 2011

### DESCRIPTION

Students will apply the concepts of scarcity, choice, and opportunity costs using a production possibilities curve. Students will interpret points inside and outside the curve. As an extension, students will see the relationship between a country's aggregate production function and its production possibilities curve.

### STUDENTS WILL

• Explain "efficiency" using a production possibilities curve.
• Calculate the opportunity cost of consuming the marginal quantity of good X.
• Graph a production possibilities curve from a table.
• Graph a production possibilities curve from an equation.

### INTRODUCTION

The production possibilities curve is an excellent tool for showing scarcity, opportunity cost, and allocation of goods and services. The model is used to explain economic growth and efficiency for an economy. For teachers who want to help students piece together macroeconomic concepts, an exciting advanced analysis is added to the student worksheet that ties a country's aggregate production function to the production possibilities curve.

### RESOURCES

• Production Possibilities Curve: These videos explain everything that is needed to know about this concept in order to complete the lesson. Part I and Part II .

• Economics: The Study of Choice: FlatWorld Knowledge has an online presentation powerpoint on the Production Possibilities Curve. Information is free to use online but must be purchased to print. The Textbook or Chapter is available for purchase online (\$2.49 per chapter, \$24.95 book)
• Production Possibilities Curve Worksheet: Student Version.
Student Worksheet

• Production Possibilities Curve Worksheet Key: Teacher Version.
Teacher Key

### ASSESSMENT ACTIVITY

1. Which of the following are assumptions underlying the PPC?
1. [Only two goods are produced]
2. Technology, population, and capital are variable.
3. Prices determine the position on the PPC.
4. All the above.

2. Efficiency along the PPC implies,
1. Goods are produced quickly
2. The state of technology is maximized
3. [In order to get more of a good, some of another must be given up]
4. Goods are distributed equitably

3. Which of the following would not shift an economy's PPC?
1. An increase in population
2. Doubling the amount of capital in the economy
3. [An increase in the money supply]

4. What determines the opportunity cost along a PPC?
1. The kinds of goods being produced
2. [The slope of the PPC]
3. Choices made by the economy
4. The area under the PPC

5. An economy has a constant cost PPC. What do you know about the slope?
1. [A straight line]
2. Bowed in
3. Bowed out
4. Convex to origin

6. What statement below implies that a PPC will be an increasing cost curve?
1. Resources are scarce
2. [Most resources are more productive in certain uses than others]
3. Underemployment of productive resources
4. Diminishing marginal returns to scale

7. A PPC shows,
1. The best combination of goods to produce
2. The plans for increasing output in the short run
3. [What can be produced with various combinations of resources]
4. Resources are constrained by choices

### CONCLUSION

This lesson shows students the most basic and important foundations of macro and microeconomics. Students should now be able to discuss production possibility curves and work out production possibility curves with respect to individual problems.

### EXTENSION ACTIVITY

Ask students to build their own PPC. Have a student do as many pushups as he or she can in 30 seconds and record the number. Then have the same student solve addition problems for 30 seconds. Record that number. Using pushups and addition problems, plot a straight line PPC. Calculate the relative opportunity costs. If you want a concaved PPC, have the student complete both pushups and addition problems in the 30 second time period. Record and plot the data.