Lecture-2

Graphs and Production

Possibilities
S M Zahid Iqbal
• Independent variable: Variable that stands alone
and isn't changed by the other variable.

• Dependent variable: Variable that depends on

other factors.

• Function: A relation between independent and

dependent variable (each value of independent
variable is related to exactly one value of
dependent variable).
• Direct relationship: Both variables move in the
same direction

• Inverse relationship: Variables move in the

opposite direction.

• Drawing graphs from equation

• Slope of a line
• Slope of a curve
• 450 line
 The Production Possibilities
Frontier (PPF)
• The PPF is a graph representing the
possible combinations of two goods that
an economy can produce in a certain
period of time under the conditions of a
given state of technology, no unemployed
resources and efficient production
Straight Line PPF: Constant
Opportunity Costs
 Law of Increasing Opportunity
Costs
• In the Real World, most PPF lines are bowed
outward.

• For most goods, the opportunity costs increase

as more of the good is produced.
produced

• This is called law of increasing opportunity cost

(which is resulted from law of diminishing
returns)
Bowed Outward PPF: Increasing
Opportunity Costs
 Economic Concepts in a PPF
Framework
• Scarcity
• Choice
• Opportunity cost
• Productive efficiency
• Unemployed resources
• Economic growth
Thank You