• 1.4: The Production Possibility Frontier

    • Factors of Production and the Production Possibilities Curve Book

      Read Sections 2.1 and 2.2. Take a moment to read through the stated learning outcomes for this chapter, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Also, attempt the "Try It" problems for each section before checking your answers.

      The first section of the chapter will introduce you to the four factors of production that are present in the economy: labor, capital, natural resources, and entrepreneurship. Using any two factors of production, you can then learn to construct the production possibility frontier (PPF) in a two plane model. Note the economic implications of the downward slope and the bowed-out shape of the PPF curve. Also, note the meaning of producing on the curve versus inside the curve. Lastly, think about what it means to move along the curve

    • Production Possibilities Frontier Page
      Watch this video about the production possibilities frontier, which is a representation of an economic model that shows you how we make decisions based on scarce resources.
    • Opportunity Cost Page

      Watch this lecture about opportunity costs with the use of the production possibilities frontier. Make sure to go back to the main reading material for Unit 1.4 as it explains the meaning behind the concept of the PPF. In this video you will see how we can apply the production possibilities model to examine the choices to produce more of some good and less of another. The PPF shows the goods and services that an economy is capable of producing – its possibilities – given the factors of production and the technology it has available. The model specifies what it means to use resources fully and efficiently when a combination of the goods is represented on the line. Think about what it would mean to be: (1) inside the line and (2) outside the line.

    • Increasing Opportunity Cost Page
      Watch this video lecture about increasing opportunity costs when you move a production point in the production possibilities frontier.
    • Allocative Efficiency and Marginal Benefit Page
      Watch this video about allocative efficiency and marginal benefit with the use of the production possibilities frontier.
    • Economic Growth through Investment Page
      Watch this video about economic growth through investment with the use of the production possibilities frontier.