Chapter 2

Production Possibility Curves

 Chapter Objectives
– To define the implications of scarcity in an
economic system.
– To define the meaning of production
possibility curves.
– To understand the economic implication of
the model.
– To discuss the economic importance of the
law of increasing opportunity cost.
– To understand the application of a
production possibility curve in the
business world.
 Scarcity
a situation in which the factors of
producing things the people want are
not enough to satisfy all needs
 Opportunity Cost
• benefits forgone for the best alternative
resource
 Production Possibility Curves
• is a curve that shows all possible
combinations of output that an
economy can produce given unlimited
wants
 X-inefficiency
• – resources are wasted when more of
somethings can be produced without
making less of anything else.