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    Unlimited Wants But Limited Resources

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    Sudhish Thapa
    1) A production possibility curve (PPC) shows the maximum output combinations of two goods an economy can produce with limited resources. It demonstrates the concept of opportunity cost as producing more of one good requires giving up production of the other. 2) The opportunity cost of producing 300 laptops instead of 200 is the loss of 400 bikes. The opportunity cost of increasing bike production from 4800 to 5000 is 100 fewer laptops. 3) When resources are not fully utilized, as in a situation of unemployment, production lies inside the PPC curve rather than on it. Points outside the curve are currently impossible to attain.

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    Unlimited Wants But Limited Resources

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    Sudhish Thapa
    41 views8 pages
    1) A production possibility curve (PPC) shows the maximum output combinations of two goods an economy can produce with limited resources. It demonstrates the concept of opportunity cost as producing more of one good requires giving up production of the other. 2) The opportunity cost of producing 300 laptops instead of 200 is the loss of 400 bikes. The opportunity cost of increasing bike production from 4800 to 5000 is 100 fewer laptops. 3) When resources are not fully utilized, as in a situation of unemployment, production lies inside the PPC curve rather than on it. Points outside the curve are currently impossible to attain.

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    1) A production possibility curve (PPC) shows the maximum output combinations of two goods an economy can produce with limited resources. It demonstrates the concept of opportunity cost as producing more of one good requires giving up production of the other. 2) The opportunity cost of producing 300 laptops instead of 200 is the loss of 400 bikes. The opportunity cost of increasing bike production from 4800 to 5000 is 100 fewer laptops. 3) When resources are not fully utilized, as in a situation of unemployment, production lies inside the PPC curve rather than on it. Points outside the curve are currently impossible to attain.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    41 views8 pages

    Unlimited Wants But Limited Resources

    Uploaded by

    Sudhish Thapa
    1) A production possibility curve (PPC) shows the maximum output combinations of two goods an economy can produce with limited resources. It demonstrates the concept of opportunity cost as producing more of one good requires giving up production of the other. 2) The opportunity cost of producing 300 laptops instead of 200 is the loss of 400 bikes. The opportunity cost of increasing bike production from 4800 to 5000 is 100 fewer laptops. 3) When resources are not fully utilized, as in a situation of unemployment, production lies inside the PPC curve rather than on it. Points outside the curve are currently impossible to attain.

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    11 IB Economics: Production Possibility Curves (PPCs) & Opportunity Cost

    You can’t have everything.... things are scarce, so as an individual or a


    country we make decisions about which things we will have and which
    things we will have to miss out on for now: we grapple with the
    ‘economic problem’ of how to best cope with unlimited wants but limited
    resources.

    1) Opportunity cost

    ‘Opportunity cost’ refers to the value of the next best alternative that must be given up or
    sacrificed to obtain something else (what you lose when making a choice!).

    a) What is the opportunity cost of you being in class right now?

    b) If you choose to go to university after graduating high school, what is the


    opportunity cost?

    2) A production possibility curve [or production possibility frontier] shows the


    maximum production potential of a simplified economy producing only two
    goods/services at current levels of technology. This maximum level of output can
    only be achieved if ALL currently available resources of the country are used. That
    is,
    ● Land
    ● Labour
    ● Capital
    ● Entrepreneurship (business management skills)
    are being fully utilised.

    Assume that a country makes only 2 products – laptops & bikes - and puts all its available
    resources (land, labour, capital & enterprise) into production of these products. The
    country has a number of options as to how it uses these scarce resources and the
    outcomes of each choice can be seen below:

    Laptops (per day) Bikes (per day)


    0 5000 A
    100 4800 B
    200 4400 C
    300 3400 D
    400 1800 E
    500 0 F
    a) Construct a PPC using the table above (use a logical scale for bikes!!!):

    b) The opportunity of moving production from 200 laptops to 300 laptops is the
    __________ bikes we lose/miss out on.

    c) The opportunity cost of increasing bike production from 4800 to 5000 is ______
    laptops.

    3) A country producing on the actual PPC is using all its resources and using them
    efficiently. In reality, countries are unable to achieve this ideal – often it is labour
    that is used least effectively.
    a) Show on a PPC below a point indicating ‘unemployment’ (ie- all labour
    resources not used). Label this point ‘U’

    b) Add a point ‘x’ on the diagram above that is to the right (outside) the PPC.
    Explain why this point is currently impossible to attain.
    4)

    a) Which of the
    fundamental economic
    questions (WHAT to produce?
    HOW to produce? HOW MUCH
    to produce? FOR WHOM to
    produce?) does the PPC above
    illustrate?

    CDs/DVD
    b) Economics attempts to solve the ‘economic problem’ of how to attempt to satisfy
    s how the PPC curve above (for a
    unlimited wants with limited resources. Explain
    simple economy producing only two products) illustrates this.

    c) Show on the curve above how an economy might react if there is a major fall in Bullet tr
    demand for dvds/cds. [hint: add labels ‘A’ and ‘B’ on the PPC above]

    To increase productive potential a country must improve the quantity and/or quality of
    it’s resources (L,L,C,E)]. If this is done, the PPC will shift outwards as more can be
    produced.

    photo: training and testing simulator

    d) This economy begins a 10-year plan to invest in human capital (improve the
    ‘quality’ of these resources). The plan is to educate/train workers and
    entrepreneurs in fields related to the design, production and continual improvement
    of bullet trains. Illustrate below what the PPC may look like in 10 years time.

    [hint: productive potential will NOT have changed in the CD/DVD sector]
    5) The country LaLa produces computers and T-shirts. Show below on the PPC the
    effect on LaLa of an influx of 1 million skilled workers [assume that they are at a
    point ‘U’ just inside the PPC – add label]

    6) The country Po has a huge solar products industry and operates on the middle
    section of the PPC below, at a point ‘C’ [add label]. Show the effect on the
    computers
    production options of this country if 54 countries around the world sign ‘solar
    product’ export contracts with Po due to concerns over global warning. (that is –
    other country’s want to buy Po’s solar exports)

    T-shirts
    7) The country Dippsie
    produces two products, soccer
    balls and frisbees. They effectively use all their resources and so produce on the
    PPC. At present though, they have directed most of their resources to soccer ball
    production Solar
    a) Draw a diagram below illustrating this based
    scenario and label point ‘A’ in a
    suitable position.

    Furnitur

    b) A government investigation reveals that machinery (capital) used to make


    90% of Dippsie’s frisbies emit fumes that are carcinogenic (cancer causing) –
    their use is immediately banned. Show the effect of this as Point’B’ on your
    diagram.

    8) ‘Sompalli’ produces airplanes and skateboards. They produce at point P on the PPC
    (pick a spot and label P)
    Under their skilled immigration program, they bring in 54 000 extra aircraft
    production specialists to work in the industry. Workers are sourced from France,
    Scotland and Canada. Show the expected effect on the PPC below.
    9) The country ‘Xu’ produces textbooks and computer games. It is very efficient and
    produces at Point D (pick a spot and label below ).
    airplanes
    Then a destructive hurricane comes through and wipes out 45% of Xu’s population.
    Show the effect on the PPC.

    skateboar

    10) Present consumption and enjoyment Vs future prosperity


    textbooks

    Computer
    games
    Consume
    r goods

    At point ‘A’ on the diagram above, this simplified economy is using all its currently
    available resources (also known as factors of production).
    A
    a) If the country shown on the PPC above decided to focus more of its scarce
    resources on consumer goods, there would be a movement along the PPC. Label
    this new point ’B’. Explain with reference to your diagram how this creates an
    opportunity cost.

    Capital
    goods

    b) [Note: Capital goods such as machinery, IT equipment, etc are those goods
    purchased today in order to expand or improve production in the future].

    If a country moves from point A to point B on the diagram above:


    i) What immediate benefits may be obtained for the citizens?

    ii) What might happen to economic growth outcomes in 2025?


    Explain.

    11) Classify the following as either land, labour, capital or enterprise:


    Forests surrounding ISAK
    The shinkansen from Tokyo
    A train driver on the shinkansen
    Tuna in the oceans off Japan
    Teachers at ISAK
    Apple TV in your classrooms
    Manager of the local ski resort
    Mr Jemison at ISAK
    The residential housing at ISAK
    Bus driver taking you down to Naka Karuizawa station
    Owner/operator of a popular restaurant in Karuizawa
    Snow in winter that enables the ski resorts to attract customers
    Snow making equipment

    12)If ISAK decided to pave the entrance roads to the school and around the back of
    the residences, this would create an opportunity cost.

    a) Explain

    b) Illustrate

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