1.
ProductionProduction
Possibilities:Possibilities:
Wherein Lies theWherein Lies the
Opportunity Cost?Opportunity Cost?

2.
2
Production Possibility CurvesProduction Possibility Curves
PPC is a model used to
demonstrate opportunity costs
as it diagrams various
combinations of goods/services
an economy can produce when
all productive resources are
employed.

3.
3
Economics involves choice
since limited resources means
that there will be a limited
output. A PPC will show that
as tradeoffs are made, sacrifice
or opportunity costs are
incurred.
Production Possibility CurvesProduction Possibility Curves

4.
4
Production Possibility CurvesProduction Possibility Curves
Opportunity CostOpportunity Cost is defined as theis defined as the
value of the next best alternative.value of the next best alternative.
So…opportunity cost measures theSo…opportunity cost measures the
sacrifice we make when we are forcedsacrifice we make when we are forced
to make choices due to scarcity.to make choices due to scarcity.

5.
5
Production Possibility CurvesProduction Possibility Curves
Choice A B C D E
SHOES (000,000) 0 1 2 3 4
ROBOTS (000) 10 9 7 4 0
Using data given in the table, an economy
that produces shoes and robots will have
to make choices.

6.
6
Points on the curve:
Attainable & Efficient
with these resources
Production Possibility CurvesProduction Possibility Curves
AA
CC
FF
B
DD
EE
W
R
o
b
o
t
s
Shoes

7.
7
Production Possibility CurvesProduction Possibility Curves
Points inside
curve:Inefficient
AA
CC
FF
B
DD
EE
W
R
o
b
o
t
s
Shoes

8.
8
Production Possibility CurvesProduction Possibility Curves
Points outside
curve:Unattainable
AA
CC
FF
B
DD
EE
W
R
o
b
o
t
s
Shoes

9.
9
•The concave shape of the curve implies
the fact that economic resources are not
completely adaptable.
•This curved line shows the degree of
adaptability and increasing opportunity
cost.
•A straight line would mean constant
opportunity cost.
Production Possibility CurvesProduction Possibility Curves

10.
10
The macroeconomic statistics of
the Great Depression and the
Mobilization Planning of WW II
offer two major events of the 20th
century that can be used to
demonstrate production possibility
curves.
Production Possibility CurvesProduction Possibility Curves

11.
11
• Real GDP fell from 29% from 1929 to
1933. ($833.2 B to $511.0 B)
Great Depression 1929-1933Great Depression 1929-1933
• Real Investment fell by 83.6% from 1929
to 1933.
•Commercial and Industrial construction
fell 85% by 1933.
• Industrial production fell 47% below
normal by 1932
• Foreign export trade fell by 3.63B by 1932

12.
12
• Unemployment Rate rose from 3.2%
in 1929 to 25.2% in 1933.
Great Depression 1929-1933Great Depression 1929-1933
• The number of Employed Workers
dropped from 97.5 M in 1929 to 65.9M
in 1933.
• Payrolls between 1929 and 1933
declined 56%.
• Farmers’ gross income fell 57% by
1932.

13.
13
What do these statistics mean in terms ofWhat do these statistics mean in terms of
the Production Possibility Curve?the Production Possibility Curve?
Great Depression 1929-1933Great Depression 1929-1933
•Reduced use of resourcesReduced use of resources
——land, labor, capital, entrepreneurshipland, labor, capital, entrepreneurship
•Reduced income to purchase wants andReduced income to purchase wants and
needsneeds
•Reduced set of goods and servicesReduced set of goods and services

14.
14
CC
oo
nn
ss
uu
mm
ee
rr
GG
oo
oo
dd
ss Capital GoodsCapital Goods
1920’s1920’s
The US economy in theThe US economy in the
1920’s was producing1920’s was producing
close to PPC. Manyclose to PPC. Many
consumer goods and aconsumer goods and a
fair amount of capitalfair amount of capital
goods were produced.goods were produced.
Great Depression 1929-1933Great Depression 1929-1933

15.
15
By 1933, we were usingBy 1933, we were using
only a fraction of ouronly a fraction of our
productive resources.productive resources.
Consumer goods andConsumer goods and
capital goods productioncapital goods production
was very low.was very low.
Great Depression 1929-1933Great Depression 1929-1933
19331933
CC
oo
nn
ss
uu
mm
ee
rr
GG
oo
oo
dd
ss Capital GoodsCapital Goods
1920’s1920’s

16.
16
By 1933, the US wasBy 1933, the US was
operating well insideoperating well inside
the Productionthe Production
Possibility Curve.Possibility Curve.
Great Depression 1929-1933Great Depression 1929-1933
19331933
CC
oo
nn
ss
uu
mm
ee
rr
GG
oo
oo
dd
ss Capital GoodsCapital Goods
1920’s1920’s

17.
17
Great Depression 1929-1933Great Depression 1929-1933

18.
18
Great Depression 1929-1933Great Depression 1929-1933
Another problem of the GreatAnother problem of the Great
Depression wasDepression was thatthat somesome
resources were idled for soresources were idled for so
long that they could not belong that they could not be
retrieved and used again.retrieved and used again.
We lost some of ourWe lost some of our
resources forever.resources forever.

19.
19
• Between 1939 and
1941, industrial
production doubled,
with consumer goods
rising 25%.
Mobilization for WW IIMobilization for WW II
• The Federal government spent $16B
to convert existing and to build new
production facilities.

20.
20
Production of new
machinery quadrupled
by 1942.
• Transportation
equipment production
(automotive, aircraft,
railroad, and ships)
jumped by 7 times by
1944.
Mobilization for WW IIMobilization for WW II

21.
21
Mobilization for WW IIMobilization for WW II
Material shortages
(aluminum, iron,
rubber, gas and oil)
were overcome by
scrap recovery, new
discoveries of
minerals, and greater
productive capacity.

22.
22
Mobilization for WW IIMobilization for WW II
• Between 1940 and
1945, the labor
force increased
20% even though
12M men and
women entered the
armed forces.

23.
23
Mobilization for WW IIMobilization for WW II
The number of
women working
increased by 5M,
with women
factory workers
doubling
between 1939
and 1944.

24.
24
• On average,
the number of
hours in the
workweek
increased by
20%.
Mobilization for WW IIMobilization for WW II

25.
25
• The War Production Board said
that “productivity — output per
man-hour—climbed sharply, as
volume increased, manufacturing
methods improved, and workers
responded to appeals to move the
munitions to the fighting fronts
faster and faster”.
Mobilization for WW IIMobilization for WW II

26.
26
Mobilization for WW IIMobilization for WW II
The Production Possibility Curve can
move outward from the origin for a
number of reasons.
• increases in the factors of
production—land, labor and
capital
• increases in the productivity of
these factors
• improved technology

27.
27
C
o
n
s
u
m
e
r
G
o
o
d
s
Military GoodsMilitary Goods
Mobilization for WW IIMobilization for WW II
19331933
19401940
19441944
• By 1944, war
spending was
40% of GDP.

28.
28
Mobilization for WW IIMobilization for WW II
This movement of the PPC indicatesThis movement of the PPC indicates
ECONOMIC GROWTH.ECONOMIC GROWTH.
Growth is the fuel that increases the
standard of living.
New inventions, processes, and improved
training for workers gave a boost to the
economy and set the stage for the growth
that occurred in the 1950’s and 1960’s.