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Do Now
Using the concept of scarcity, describe what is wrong with
thispicture:
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O bjectives T11, T12, T13O bjectives T11, T12, T13
The Economic Way of Thinking
- AP Microeconomics
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A genda
1. Discuss Do Now (5 minutes)
2. Homework Review (5 minutes)
3. OBJ T11 (20 minutes)
4. OBJ T12 (20 minutes)
5. OBJ T13 (20 minutes)
6. PPC Packet (? Minutes)
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T11 Construct production possibility curvesfrom sets of
hypothetical data.
Scarcity tells us that we need to make a choice whenthere are
limited resources. You cant have it all!
Therefore, there are limits to what we choose. If we have
$100, we might be able to buy 20 lunches. We could buy50
Gatorades. B ut we cant buy 20 lunches A ND 50Gatorades.
We could buy a combination of some of each however.These
possible combinations of production aredesignated by a curve on a
graph. Hence the name.
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T11 Construct production possibility curvesfrom sets of
hypothetical data.
A production possibility curve is a line on a graph thattells us
the limits of production. Since land, labor, andcapital is limited,
you cant produce unlimited things.
Take a look at this data for producing water bottles andCDs. Can
you explain why one increases while the other decreases?
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T11 Construct production possibility curvesfrom sets of
hypothetical data.
If we were to graph this data, it would look like this:
PPC
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T11 Construct production possibility curvesfrom sets of
hypothetical data.
A nother more familiar example of a PPC in your life:
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T11 Construct production possibility curvesfrom sets of
hypothetical data.
Practice Example 1: Shipwrecked
Hours Fish (lbs) Fruit (lbs)0 0 0
1 4.0 8
2 7.5 15
3 10.5 21
4 13.0 26
5 15.0 30
6 16.5 33
7 17.5 35
8 18.0 36
O R
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T11 Construct production possibility curvesfrom sets of
hypothetical data.
Summarize.
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T12 A pply the concept of opportunity costto a production
possibility curve.
PPCs show possible combinations of production.However, what does
it tell us when we move to another possibility? Lets say we are
producing at Possibility Aand we now change to Possibility B ? What
happens?
Look at the B ottled Water and CDs data:
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T12 A pply the concept of opportunity costto a production
possibility curve.
What does this look like on the graph?
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T12 A pply the concept of opportunity costto a production
possibility curve.
What is the trend for opportunity cost of water?
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T12 A pply the concept of opportunity costto a production
possibility curve.
What can we say about the slope of the PPC for fewbottles of
water? For many bottles of water? How does itchange from left to
right?
How can we relate this to the change in opportunity cost?
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T12 A pply the concept of opportunity costto a production
possibility curve.
Determining opportunity cost using a PPC: Shipwrecked!
(a) Make a table showing the opportunity cost for a poundof fish
as more and more time is spent fishing.
P ossibility Fish (lbs) Fruit (lbs)
A 0 36
B 4.0 35
C 7.5 33
D 10.5 30
E 13.0 26
F 15.0 21
G 16.5 15
H 17.5 8
I 18.0 0
(b) If production of fruit inincreases from 21 to 26pounds, what
is theopportunity cost of a pound
of fruit?(c) If we are catching 10.5 lbsof fish and 30 lbs of
fruit,what is the opportunity costof a pound of each?
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T12 A pply the concept of opportunity costto a production
possibility curve.
Determining opportunity cost using a PPC: Shipwrecked!
O n your second example (in the winter), determine:(a) A table
that shows the opportunity cost of a pound of
fruit as time spent picking fruit increases.(b) The opportunity
cost of both a pound of fruit and apound of fish if we are
currently producing 5.5 lbs of fish and 15 lbs of fruit.
(c) The opportunity cost of a pound of fish if we
increasefishing from 5.5 lbs to 7.5 lbs.
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T12 A pply the concept of opportunity costto a production
possibility curve.
Summarize.
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T13 A nalyze the significance of differentlocations on, above,
or below the PPC.
We have looked at points on the PPC. They signify what?
Well, what about other points on the graph? Do they haveany
meaning?
YES!
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T13 A nalyze the significance of differentlocations on, above,
or below the PPC.
Lets look at a point above the PPC:
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T13 A nalyze the significance of differentlocations on, above,
or below the PPC.
What about below the PPC:
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T13 A nalyze the significance of differentlocations on, above,
or below the PPC.
O ther points have other meaning, and we need to takethose into
account:
A bove the PPC is an unattainable combination of
production.
B elow the PPC is an inefficient combination of production(plus
the fact that we can get a free lunch from it bymoving onto the
curve).
O n this PPC is just right.
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T13 A nalyze the significance of differentlocations on, above,
or below the PPC.
Can a PPC change position? Yes! We get more efficient.
Lets say a company finds a cheaper way of making water bottles.
Then, for the same amount of capital, they should
be able to produce more bottles of water. This shifts thePPC
outward for water bottles.
Take note of how we nameeach PPC with letters.
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T13 A nalyze the significance of differentlocations on, above,
or below the PPC.
Summarize.
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A P Microeconomics
