Do Now

Using the concept of scarcity, describe what is wrong with this

picture:
 Objectives T11, T12, T13

The Economic Way of Thinking

- AP Microeconomics
 Agenda

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)

 T11 – Construct production possibility curves
from sets of hypothetical data.

Scarcity tells us that we need to make a choice when

there are limited resources. You can’t 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 buy
50 Gatorades. But we can’t buy 20 lunches AND 50
Gatorades.

We could buy a combination of some of each however.

These possible combinations of production are
designated by a curve on a graph. Hence the name.
 T11 – Construct production possibility curves
from sets of hypothetical data.

A production possibility curve is a line on a graph that

tells us the limits of production. Since land, labor, and
capital is limited, you can’t produce unlimited things.

Take a look at this data for producing water bottles and

CDs. Can you explain why one increases while the other
decreases?
 T11 – Construct production possibility curves
from sets of hypothetical data.

If we were to graph this data, it would look like this:

PPC
 T11 – Construct production possibility curves
from sets of hypothetical data.

Another more familiar example of a PPC in your life:

 T11 – Construct production possibility curves
from 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
OR
4 13.0 26
5 15.0 30
6 16.5 33
7 17.5 35
8 18.0 36
 T11 – Construct production possibility curves
from sets of hypothetical data.

Practice Example 2: Shipwrecked…in Winter.

Hours Fish (lbs) Fruit (lbs)
0 0 0
1 3.0 6
2 5.5 OR 11
3 7.5 15
4 9.0 18
5 10.0 20
 T11 – Construct production possibility curves
from sets of hypothetical data.

Summarize.
 T12 – Apply the concept of opportunity cost
to a production possibility curve.

PPCs show possible combinations of production.

However, what does it tell us when we “move” to another
possibility? Let’s say we are producing at Possibility A
and we now change to Possibility B? What happens?

Look at the Bottled Water and CDs data:

 T12 – Apply the concept of opportunity cost
to a production possibility curve.

What does this look like on the graph?

 T12 – Apply the concept of opportunity cost
to a production possibility curve.

What is the trend for opportunity cost of water?

 T12 – Apply the concept of opportunity cost
to a production possibility curve.

What can we say about the slope of the PPC for few
bottles of water? For many bottles of water? How does it
change from left to right?

How can we relate this to the change in opportunity cost?

 T12 – Apply the concept of opportunity cost
to a production possibility curve.

Determining opportunity cost using a PPC: Shipwrecked!

(a) Make a table showing the opportunity cost for a pound

of fish as more and more time is spent fishing.

(b) If production of fruit in Possibility Fish (lbs) Fruit (lbs)

increases from 21 to 26 A 0 36

pounds, what is the B 4.0 35

C 7.5 33
opportunity cost of a pound D 10.5 30
of fruit? E 13.0 26

(c) If we are catching 10.5 lbs F 15.0 21

G 16.5 15
of fish and 30 lbs of fruit, H 17.5 8
what is the opportunity cost I 18.0 0

of a pound of each?
 T12 – Apply the concept of opportunity cost
to a production possibility curve.

Determining opportunity cost using a PPC: Shipwrecked!

On 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 a
pound 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 increase
fishing from 5.5 lbs to 7.5 lbs.
 T12 – Apply the concept of opportunity cost
to a production possibility curve.

Summarize.
 T13 – Analyze the significance of different
locations 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 have

any meaning?

YES!
 T13 – Analyze the significance of different
locations on, above, or below the PPC.

Let’s look at a point above the PPC:

 T13 – Analyze the significance of different
locations on, above, or below the PPC.

What about below the PPC:

 T13 – Analyze the significance of different
locations on, above, or below the PPC.

Other points have other meaning, and we need to take

those into account:

Above the PPC is an unattainable combination of

production.

Below the PPC is an inefficient combination of production

(plus the fact that we can get a “free lunch” from it by
moving onto the curve).

On this PPC is just right.

 T13 – Analyze the significance of different
locations on, above, or below the PPC.

Can a PPC change position? Yes! We get more efficient.

Let’s 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” the
PPC outward for water bottles.

Take note of how we name

each PPC with letters.
 T13 – Analyze the significance of different
locations on, above, or below the PPC.

Summarize.
AP Microeconomics