Chapter 3 : The Production Possibilities Frontier (PPF)

1. INTRODUCTION

1.1 LEARNING OBJECTIVES

 Explain the role of models in economics.
 Apply the concepts of scarcity, choice, opportunity cost, and the
interdependence principle to the production possibilities frontier.

1.2 ACTIVATOR EXPERIMENT

How is this model airplane like a real airplane?
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

How is this model airplane not like a real airplane?

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

Economic model:

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

Why do economists use model?

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

What does “ceteris paribus” mean?

…………………………………………………………………………………………………………….

1.3 ACTIVITY SIMULATION : PANDA – TIGER BOOKMARS

CLASS PRODUCTION POSSIBILITIES

Possibilit Quantity of Panda

Quantity of Tiger Bookmarks
y Bookmarks

E
TASK : Graph the data from previous table

Production possibilities frontier (PPF):

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

Positive statement
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

Normative statement
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

Examples:
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….
ADDITIONAL INFORMATION ABOUT POINTS ON THE PPF
What is point J (let’s add it up on the graph from previous page)?
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

What is point K (let’s add it up on the graph from previous page)?

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

What is point L (let’s add it up on the graph from previous page)?

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

QUESTIONS
How is scarcity evident in the PPF?
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

How is opportunity cost evident in the PPF?

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

How is the interdependence principle evident in the PPF?

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

1.4 LET’S PRACTICE

EXERCISE 1
a) If the U.S. chooses to produce 16
million smartphones, what is the
maximum number of tablets it can
produce?

………………………………………………………………………………………………

b) What does the U.S. gain by choosing to

move from Point A to Point B? What does
it give up?
………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………
c) Make one positive statement based on the previous model.

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

EXERCISE 2
Imagine a farmer who owns a large, productive parcel of land on which she can
produce either soybeans or corn. The questions hereunder refer to this
production possibilities schedule which shows the points along the PPF for this
farmer.

The PPF shown above:

a) Depicts the boundary between the combinations of corn and soybeans that
can be produced by one farmer given available resources and the current state of
technology.
b) Shows how many G&S are consumed by one farmer.
c) Is a model that assumes there is no scarcity and no opportunity cost.
d) Shows that both soybean and corn production can be increased at the same
time

Which of these is not a possible combination of soybean/corn output ?

a) 1,000 bushels of soybeans, 750 bushels of corn
b) 500 bushels of soybean, 500 bushels of corn
c) 500 bushels of soybeans, 1,000 bushels of corn
d) 1,500 bushels of soybeans, 250 bushels of corn

Last year, this farmer produced 1,000 bushels of soybeans. This year, she wants
to produce 1,500 bushels of soybeans. Assuming no change in resources or
technology, what will her opportunity cost be ?
a) 1,500 bushels of soybeans
b) 1,000 bushels of corn
c) 400 bushels of soybeans
d) 500 bushels of corn
 2. ADDING COMPLEXITY TO THE PRODUCTION POSSIBILITIES
FRONTIER

2.1 LEARNING OBJECTIVES

 Identify and describe factors of production.
 Apply the concepts of scarcity, choice, opportunity cost, and the
interdependence principle to a PPF.
 Explain the causes of shifts in the PPF.

2.2 ACTIVATOR : PETLAND PRODUCTION POSSIBILITIES

a) What does this model assume?

………………………………………………………………………………

………………………………………………………………………………

………………………………………………………………………………

………………………………………………………………………………

b) How does this model relate to opportunity cost?

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

c) Describe where on this model production is efficient, inefficient, and not

currently possible.
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

d) How might Petland be able to achieve production at a point that is not

currently possible?
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

e) Discuss with your neighbor : What is needed to produce a cat condo and a
dog house?
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….
 2.3 FACTORS OF PRODUCTION

The factors of production are

……….
…………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

EXTRA NOTES and EXAMPLES

1. LAND & NATURAL RESOURCES

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

! NOT TO MIX WITH INTERMEDIATE GOODS !

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

2. HUMAN RESOURCES are made of

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

3. CAPITAL RESOURCES also called __________________________________

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

! NOT TO CONFUSE WITH __________________________________ !

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

4. ENTREPRENEURS
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….
 Source : Guide to the Essentials of Economics, Pearson Prentice Hall

Efficiency is ……………………………………………………………………………………………………………………………………………..……………

……………………………………………………………………………………………………………………………………………………….……………………………

LET’S CHECK IN
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

TECHNOLOGY

Technology is
……….
…………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

Examples :
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….
 2.4 PPF SHAPE MATTERS
WHEN STRAIGHT

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

How are the opportunity costs in PETLAND ?

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

EXTRA NOTES
…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

WHEN CURVED

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

How are the opportunity costs in ECONISTAN ?

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….

…………………………………………………………………………………………………………………………………………………………………………………….
Law of increasing opportunity cost is ……….
…………………………………………………………………………………………………
………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

2.5 PPF SHIFT MATTERS

How might Petland be able to achieve

production at a point that is not currently
possible ?
……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

The PPF will shift right if, ceteris paribus (all other things being equal) there is an
………………

………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

Examples of developments that can shift PPF to the right include:

………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

How might Hometopia be able to achieve

production with a curve located left from
the current one?
……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

……………………………………………………………………………………

The PPF will shift left if, ceteris paribus (all other things being equal) there is a
……………………

………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

Examples of developments that can shift PPF to the right include:

 ………………………………………………………………………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………………………………………………………………………

2.6 PPF PRACTICES

A Scenario B Scenario

Opportunity Cost (Circle One) Opportunity Cost (Circle One)

Constant or Increasing Constant or Increasing

PPF Shape (Circle One) PPF Shape (Circle One)

Straight line or Bowed out Straight line or Bowed out

Draw a PPF based on the information above (pre- Draw a PPF based on the information above
scenario). (pre-scenario).

Read the scenario. Show the effect of the Read the scenario. Show the effect of the
development from the scenario in the PPF above development from the scenario in the PPF above
using a different color pen or pencil. using a different color pen or pencil.

Explain the change you made in the PPF. Explain the change you made in the PPF.