Production Possibilities Graphs

Production Possibilities Graphs Economics E. Napp

1) We live in country X. Most of country X is a tropical rain forest. We have many trees. We can use our trees to make goods. List those goods we could make using our trees: ______

2) So, we have many choices. In order to better understand our choices, we make a production possibilities graph.

This graph shows ______.

Of course, whatever decision we make has its costs.

If we make more ______, we will have fewer trees to make ______.

Remember that we can’t have it all (Scarcity exists!). (Define scarcity: ______and trade-offs: ______and opportunity costs: ______)

The production possibilities graph allows us to see these trade-offs clearly.

3) We also don’t want to waste resources. When we waste resources, we lose ______.

The production possibilities graph allows us to know exactly how much we are capable of producing.

______means an economy is using resources in such a way as to maximize the production of goods and services.

We want to be ______. 4) The line on the graph that shows the maximum possible production is called the ______.

5) If country X does not produce as much as it can, ______occurs.

______occurs when an economy uses fewer resources than it is capable of using.

It is the opposite of ______.

It leads to problems like ______and ______.

6) Of course, in the future, resources may increase. Maybe country X will conquer some of a neighboring country’s rain forest. Or maybe new technological advances will be made that allow country X to produce goods faster.

If this occurred, the ______would shift to the right. When the curve on a graph shifts to the right, it means more. When the curve on a graph shifts to the left, it means less. Right = More Left = Less 7) Let’s review critical vocabulary from Chapter 1: Economics : ______Scarcity: ______Factors of Production: ______Physical Capital: ______Human Capital: ______Entrepreneurs: ______Shortage: ______Trade-offs: ______Guns or Butter: ______Opportunity Cost: ______Thinking at the Margin: ______Production Possibilities Graph: ______Efficiency: ______Underutilization: ______Production Possibilities Frontier: ______