Production Possibilities Curve Review - YouTube

Hey! How you doing Econ Students?

This is Mr Clifford

Welcome to ACDC Econ

Right now you'll learn about the first graph in this class, it's called the production possibilities curve.

The production possibilities curve (PPC) presents potential prospects for the production of a pair of products.

It's a pillar of the program that pupils have to practise.

This graph is totally important...

*Intro Music*

First we're going to start off with a table that shows the production possibilities of two goods.

In this case, videos and hats. And this example is actually for me.

If I quit teaching and spend all my time I can make hats, right ?

using this loom, hats that look like...this

Basically, you wrap the yarn around this

and kind of wrap it around itself

The hat kind of grows out from the bottom.

You kind of tie it off at the end.

As you can see from the chart if I spend all my time working on hats I can produce 30 hats in a week.

Y,o what's up bro?!

If I spend all my time and resources making econ videos,

I can make four videos.

But as you can see, I wouldn't be able to make any hats.

So this chart shows my production possibilities.

It shows me the different combinations of hats and videos I can make, using all of my resources.

To get the graph, you just have to plot these points.

That's going to give us a graph that looks like...

This!

This is the production possibilities curve, or sometimes called the production possibilities frontier.

The best part about this graph is the fact that it shows all the key concepts that you have been learning so far.

It's going to show scarcity, trade-offs, opportunity costs and efficiency.

It shows the idea of scarcity because it shows that I cannot produce anywhere beyond the curve.

So the curve, or the frontier, shows the idea that I have limited resources.

The graph shows trade-offs, because if I decided to start producing videos, I have to give up hats.

Or if I produce hats, I have to give up videos.

Opportunity cost is shown by the specific number of hats I give up, when I make a video.

For example. when I move from combination A to combination B, I'm producing more videos.

But I'm also losing hats.

The number of hats I lost is the opportunity cost

In this case producing the first video cost me one hat.

This graph shows efficiency because if I'm producing a point right here,

where I'm producing only 2 videos and 5 hats,

I am inefficient.

This is because I am not using all of my resources to the fullest

I'm not somewhere on the actual curve.

So any combination inside the curve is inefficient because I could produce there,

but I don't want to. I can produce more of both goods.

This means the line itself must be the idea of efficiency.

If I'm producing any of these combinations, I'm using all my resources to the fullest.

And again, a point here outside the curve is impossible because I don't have enough resources to give there.

But the curve can shift. But wait for it...that comes later.

Right now it's time for you to practice calculating opportunity cost.

So I want you to use the table and figure out the opportunity cost from each one of these.

So calculate the opportunity cost from A to D, to B to C, from E to D, and from C to A.

Remember: opportunity cost is what we're giving up. And so look for the thing we're losing.

Don't forget to clarify if I'm giving up hats or if I'm giving up videos.

The opportunity cost from A to D is 15 hats.

Notice: from combination A we're producing zero videos and 30 hats.

Now when we go over here to D, we're going to have 3 videos and we're going to have 15 hats.

That means we lost 15 hats. That's the opportunity cost.

The opportunity cost from combination B to C is 4 hats. The opportunity cost from E to D is one video.

And the opportunity cost from combination C to combination A is two videos.

Now it's super important to be able to calculate opportunity cost, but we're not done.

Let's do different examples. So in this case, let's do corn and wheat. And let's do cactus and pineapple.

It turns out that the shape of the curve is very important.

So this top one shows a constant opportunity cost between corn and wheat.

This is because the resources to produce corn and wheat; the ground, the climate, are very similar.

So you produce a certain amount of wheat, you give up a certain amount of corn.

And we produce that same amount of wheat, you give up the same amount of corn.

That shows constant opportunity cost.

But down here, when it comes to cactus and pineapples,

when you produce the very first pineapple, you have just a little bit of cactus.

When you produce the next pineapple, you probably have more. The next one even more.

And the last one...a whole of cactus you give up.

This is called increasing opportunity cost.

It's because the resources; the land and climate, produce pineapple and cactus, are completely different.

But the plural of cactuses-es is cacti

WHAWAW! CACTI! CACTI! CACTI!

So when we first start producing pineapples, we're going to give up just a little bit of cacti.

This is because we're going to use the land that's more suited towards pineapples

and it's not very good at producing cacti,

so we're going to lose a little bit of cacti and get a good amount of pineapples.

Now as we keep doing that over and over again, we're going to give up more and more cacti.

This is because we're using resources that are less and less suited towards pineapples.

Until finally, right here, we are producing just a little bit more pineapples, but giving up a whole lot of cacti.

CACTI!

And this is the idea of the law of increasing opportunity cost.

The law says that as you produce anything,

the opportunity cost to produce it is going to get bigger and bigger.

And that explains the shape of the graph.

Remember: a straight line production possibilities curve, like this, shows constant opportunity cost

and a bowed-out curve shows the idea of increasing opportunity cost.

Now if you like this video, make sure to subscribe

and you can learn more about the production possibilities curve

and how it shifts, by clicking on this video

or you can go look at Unit 1 videos by clicking right here.

Now make sure that you come back to the channel

because I'm making a ton of new videos this year. Alright? 'til next time!

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The production possibilities curve presents potential prospects for the production of two products.

[clap] A pair of products.

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[clap] Protects? Why would it protect?!