of economy available

economy computers
computers. pro andfac economy
represent the
industry,
produccon Together,
tools computers.
vari
factors carsthe
industries,
the let's the of Cars
Produced
Quantity
the shows
thethe the
600of
using services,
economy's output.) frontier some
no 3,000 produce
called computersthat
and If
built that and
frontier. two movingB. possibilities
Production
production produces point
ideas.
models, and graph into cars possibilities
the frontier
Production
are and the can by 1,000
economic
diagram,goods possibilities
factors 1,000 between by computer
goods-cars
of a it
such it Or, represented
example,
of all is andof industry,
producesproduction
simplest
basic usefrontier
thousands these
factors resources A.
the
from
industry B 600
700
circular-flow cars point
industry turnproduction
The For computers,
somne two possibilities
case,available it computer by
the to industry,
the its çomputers.
only
produce use 2
Model: illustrate
of this
computer divides Figure 300
theone economy's of
produces firms the
output-in theendpoints
Frontier
Possibilities
unlike car 2,000
use economies production
given economy in car F
to that the in extreme
these someshown
possibilities.)
Second we frontier, the resources theand Produced 3,000
ofQuantity
Computers 2,200 1,000
models, 2,000
Here thatand
technology
produce in
this two and to
of resources as cars
production
realeconomyconmbinations
mathematics. industry
possibilitiesThe
shows The thecarscomputers,
700
economic its likely,
Our Although possibly
production. cars. some produce
2 its all
production
an car (Figure uses
2-1e all no (More ducing of how
showcase, canthenot possibilities
Most tion sider uses 2,200 economy resources.
of the ouscan it and tors
can Frontier
are
inside cost on is
If frontier
this economy economy
Thisdepending
frontier opportunity
output-inor computers.
the on
Possibilities economy's
possibilities production
possibilities
the combinations
of
output The the
computersthat
combination the
cangiven
produce
possibly
the outside varies,
the available
factorsproduction
available produce. goods
shows
economy and 2FIGUREof the
of
combinations thethemeasures
Production termscosttwo
that production production frontier.
Points
production technology possibly given
any of opportunity
the
graph the
frontier slope in producing.
and producefeasible car
frontier of
that The Thethecarscan The a much
a of
of
 conceivable outcome is feasible. For ex
Decause resources are scarce, not everv industries, the econ
ample, no matterhow resources are allocated between the two
omy cannot produce the amount of cars and computers represented by point )
Given the technology available for nmanufacturing cars and computers, the econ
omy does not have enough of the factors of production tosupport that level or
output. With the resources it has, the economy can produce at any point on or
inside the production possibilities frontier, but it cannot produce at points outside
the frontier.
An outcome is said to be efficient if the economy is getting all it can from
the scarce resources ithas available. Points on (rather than inside) the produc
tion possibilities frontier represent efficient levels of production. When the
economy is producingat such a point, say point A, there is no way to produce
more of one good withoutproducing less of the other. Point Drepresents an
inefficient outcome. For some reason, perhaps widespread unemployment, the
economy is producing less than it could from the resources it has available: It
is producing only 300 cars and 1,000computers. If the source of the inefficiency
is eliminated, the economy can increase its production of both goods. For ex
ample, if the economy moves from point D to point A, its production of cars
increases from 300to 600, and its production of computers increases from 1,000
to 2,200.
One of the Ten Principles of Economics discussed in Chapter 1is that people face
trade-offs. The production possibilities frontier shows one trade-off that society
faces. Ornce we have reached an efficient point on the frontier, the only way of
producing more of one good is to produce less of the other) When the economy
moves from point A to point B, for instance, society produces 100 more cars but at
the expense of producing 200 fewer computers.
This trade-off helps us understand another of the Ten Principles of Economics:
Thecost of something is what you give up to get it. This is called the opportunity
cost. The production possibilities frontier shows the opportunity cost of one good
as measured in terms of the other good. When society moves from point Ato
point B, it gives up 200 computers to get 100 additional cars. That is, at point A,
the opportunity cost of 100 cars is 200 computers. Put another way, the oppor
tunity cost of each car is two computers.(Notice that the opportunity cost of a
car equals the slope of the production possibilities (rontier. f you don t recall
what slope is,you can refresh your memory with the graphing appendix to this
chapter.)
The opportunity cost of a car in terms of the number of computers is not con
stant in this economy but depends on how many cars and computers the economy
is producing. This is reflected in the shape of the production possibilities frontier:.
Because the production possibilities frontier in Figure 2 is bowed outward(the
opportunity cost of a car is highest when the economy is producing many cars
and few computers,such as at point E, where the frontier is steep. When the econ
omy is producing few cars and many computers, such as at point F, the frontier is
flatter, and the opportunity cost of a car is lower.
Economists believe that production possibilities frontiers often have this
bowed shape. When the economy is using most of its resources to make comput
ers, such as at point F, the resources best suited to car production, such as skilled
autoworkers, are being used in the computer industry. Because these workers
probably aren't very good at making computers, increasing car production by
one unit will cause only aslight reduction in the number of computers produced.
 uppurtunity cost of a car in terms of computers is small, and the
frontier is relatively flat. By contrast, when the economy is using most of its re.
sources to make cars, such as at point E, the resources best suited to making cars
are already at work in the car industry, Producing an additional car means moy
ing some of the best computer technicians out of the computer industry arnd turn
ing them into autoworkers. As a result, producing an additional car will mean a
substantial loss of computer output. The opportunity cost of a car is high, and the
frontier is steep.
The production possibilities frontier shows the trade-off between the outputs
of different goods at a given time, but the trade-off can charnge over time. For
example, suppose a technological advance in the computer industry raises the
number of computers that a worker can produce per week. This advance expands
society's set of opportunities. For any given number of cars, the economy can now
make more computers. Ifthe economy does not produce any computers, it can
still produce 1,000 cars, so one endpoint of the frontier stays the same. But if the
economy devotes some of its resources to the computer industry, it will produce
more computers from those resources. As a result, the production possibilities
frontier shifts outward, as in Figure 3.
This figure illustrates what happens when an economy grows. Society can
moveproduction from apoint on the old frontier to a point on the new frontier.
Which point it chooses depends on its preferences for the twogoods. In this ex
ample, society moves from point Ato point G, enjoying more computers (2,300
instead of 2,200) and more cars (650 instead of 600).
The production possibilities frontier simplifies a complex economy to highlight
some basic but powerful ideas: scarcity, efficiency, trade-offs,
and economicgrowth. As you study economics, these ideas opportunity cost,
will recur in vari
ous forms. The production possibilities frontier offers one simple
about them. way of thinking

FIGURE3 Quantity of
Computers
A Shift in the Production Produced
Possibilities Frontier
A technological advance in the com
puter industry enables the economy 4,000
to produce more computers for any
given number of cars. As a result,
the production possibilities frontier 3,000
shifts outward. If the economy moOves
from point A to point G, then the pro 2,300
duction of both cars and Computers 2,200
increases.

0
600 650 1,000 Quantity of
Cars Produced