Introduction to Economics

10/09/19
 STARTER
 

Cups of water experiment.

 The Big
Q
Why is the Production Possibility
Curve a useful model?
Learning Intentions:
1. Define the Production Possibility Curve
2. Graph and explain how the PPC works
3. Explain what is meant by economic
growth
Recap of Previous Lessons
Key Terms
Can you recall the meaning of the following:
1. Scarcity
2. The ‘economic problem’
3. Opportunity Cost
Production Possibility Curve (PPC)
Also known as the Production Possibility Frontier
(PPF) – this can be used to demonstrate opportunity
cost and our decision on which goods to produce.

A PPC shows the different combinations of two

goods that can be produced if all resources in a
country are fully used.
 Ceteris Paribus
‘Ceteris Paribus’ is a Latin phrase meaning all other
things being equal or all other things remaining
constant.

It is an assumption used in economics to simplify

models. In the PPC, for example, we assume only two
products are produced and resources are fully utilized.
Production Possibility Curve (PPC)

So how do you draw a PPC curve???

Production Possibility Curve (PPC)
A PPC shows the different combinations of
two goods a country can produce assuming all
resources are used up.

Moving along the PPC will result in an

opportunity cost.
Production Possibility Curve (PPC)
Any point on the PPC demonstrates full employment of available
resources – it is efficient.

Any point inside the PPC demonstrates that resources are not fully
unemployed – inefficiency.

Any point outside the PPC curve is currently unattainable due to

insufficient resources. However, over a long period of time this
point may become achievable - economic growth.
Production Possibility Curve (PPC)
Economic growth is an increase in the level of
output (GDP) by a nation.

It can occur for several reasons.

 Causes of Economic Growth
1. New Technology: usually faster and more reliable and therefore more output can
be produced.

2. Improved Efficiency: more efficient methods (kiazen & lean production) replace
old ones and more output can be produced with fewer resources.

3. Education & Training: educated and trained workers can more efficiently carry
out tasks, increasing output.

4. New Resources: discovery of new resources, such as oil, can allow a country to
increase its productive capacity.
 Effect of Economic
Growth on the PPC
If countries can produced more economic growth will cause a shift
outwards on the PPC, i.e. to the right.

Negative economic growth (where production potential decreases)

would cause the PPC to shift inwards, i.e. to the left.
 Causes of Negative
Economic Growth
1. A country runs out of natural resources.
2. Weather patterns, e.g. drought or flood
3. Emigration of skilled and qualified workers
4. War
 Activity
Page 11 of Textbooks:
Study the graph in Figure 1.8 and answer the
accompanying questions 1 – 5 in your
Economics copybook.
 Plenary
Key Vocabulary:
Production Possibility Curve (PPC): line that shows the different combinations of two
goods and economy can produce if all resources are used up

Economic Growth: increase in the level of output by a nation.

Negative Economic Growth: decrease in the level of output by a nation.

Capital Goods: those purchased by firms and used to produce other goods, e.g
machinery and tools.

Consumer Goods: those purchased by households for consumption, such as food, cars
and furniture.