„

„
 PRODUCTION
 POSSIBILITIES
 FRONTIER

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 Objectives
Production
Possibilities Frontier
„Describe the production possibilities
frontier and explain its shape.
„Explain what causes the production
possibilities frontier to shift.

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 Key Terms
Production Possibilities
Frontier
„production possibilities frontier (PPF)
„efficiency
„law of increasing opportunity cost
„economic growth

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 Efficiency and Production
Possibilities Frontier
„ PPF model
„ Shows possible combinations of 2 types of
goods that can be produced when available
resources are used fully and efficiently
„Figure 2.1
„Inefficient and unattainable production
„Point I and U on the curve
„Shape of the PPF
„Any movement along PPF involves giving up
something

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 Production Possibilities
Frontier – PPF Figure 2.1
„A through F are
attainable
„I represents
inefficient use
of resources
„U represents
unattainable
combinations

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 Efficiency and Production
Possibilities Frontier
„The resources in an economy are not all
perfectly adaptable
„Law of increasing opportunity cost – each
additional increment of one good requires
the economy to give up larger increments
of other good
„The PPF has a bowed-out shape due to the
law of increasing opportunity cost

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 Shifts in the PPF
„Economic Growth – an expansion in the
economies ability to produce
„Changes in resource availability
„Increase (more labor) – PPF shifts outward
„Decrease (less resources) – PPF shifts
inward
„Increases in stock of capital goods
„Technological change

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 Shifts in the PPF
Increase in available resources Decrease in available resources

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 Dubai Mega Projects

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 Hongkong Disneyland Park

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 Private subway line to go to
Hongkong Disneyland

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 Transportation Station

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 Reception Area

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 Typical main street

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 One of the shops at the park

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 Shops in the main streets

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 Dubai Palm Island (2000 villas, shopping
complex, cinema, marine park, beaches, etc.

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 Hydropolis Underwater Hotel
„Currently under
construction in
Dubai, Hydropolis
is the world's first
luxury underwater
hotel. It will include
three elements: the
land station, where
guests will be
welcomed, the
connecting tunnel,
which will transport
people by train to
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 Hydropolis Underwater Hotel
„ people by train to the
main area of the
hotel, and the 220
suites within the
submarine leisure
complex. It is one of
the largest
contemporary
construction projects
in the world,
covering an area of
260 hectares, about
the size of London's
Hyde Park.
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 „The ballroom,
located at this
nerve centre, will
have asymmetrical
pathways
connecting the
different storeys
along ramps. A
large, petal-like
retracting roof will
enable the staging
of open-sky
events. Staircases,
lifts and ramps will
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provide access to
 „ballroom, while
flanking catering
areas will supply
banquets and
receptions.

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 „The land station
also includes a
restaurant and
high-tech cinema
screening the
evolution of life
in the ocean and
the history of
underwater
architecture. As
a finale, the
screen will open
to reveal the
real-life
Hydropolis.
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 „A viewing platform
at the front
opening of the
spanning roof
will allow views
of the
architecture as
well as the light
shows of
Hydropolis.

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 A house on the rock

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 Maximizing Effectiveness

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 Now, creating something
out of nothing…..

That is also one way we can

increase our UTILITY, our
usefulness….. our
WORTH….. our Country’s
income

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 Sand Sculpture to attract
tourism……

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 Tourism brings in a lot of
income for the country…..

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 Not all tourist spots are due
to nature’s riches……

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 Man… creative as he is, can
create events…..

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 ….to attract people to come
to a particular place…..

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 ..either as a domestic or
foreign tourist…..,,,,

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 ..the bottom line is.. LET
PEOPLE COME….

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 When people come to visit, they eat, they
have to sleep in hotels, they buy
souvenirs. Tourism is one of the biggest
source of income for a country.

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 „ Have you heard of
HIROSHIMA,
NAKASAKI?


„What have you heard

about the place?
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 Hiroshima, 64 years ago….

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 Hiroshima, 64 years ago….

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 Since the bombings in 1945,
here is HIROSHIMA now…..

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 Since the bombings in 1945,
here is HIROSHIMA now…..

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 Since the bombings in 1945,
here is HIROSHIMA now…..

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 Since the bombings in 1945,
here is HIROSHIMA now…..

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 „All other Asian countries are expanding
their country’s PRODUCTION
POSSIBILITIES FRONTIER…..
„Philippines used to be the most
progressive among all of these Asian
countries…. They come to study in our
universities, they come to learn how to
plant rice, they come to learn how to
speak English, THEY COME TO
LEARN FROM US.

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 „Now, in the present ratings of Asian
countries based on their country’s
earnings, WE ARE SECOND TO THE
BOTTOM. The last, which is
VIETNAM.
„Until when will we in the second to the
last?
„Is there a possibility that we can move
upwards?
„OR ALLOW VIETNAM TO OVERTAKE
US?
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 Shifts in the PPF
Increase in available resources Decrease in available resources

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 Why is the PPF a bowed out
shape?
Increase in available resources Decrease in available resources

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 Absolute Advantage
Comparative Advantage
and other KEY WORDS

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 Objectives
Comparative Advantage
„Explain the law of comparative
advantage
„Understand the gains from
specialization and exchange.

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 Key Terms
Comparative Advantage
„absolute advantage
„law of comparative advantage
„specialization
„barter
„money
„division of labor
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 Comparative Advantage
„Absolute advantage – being able to
do something using fewer
resources than other producers
require
„Law of comparative advantage – the
worker with the lower opportunity
cost of producing a particular
output should specialize in that
output

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 Specialization
„Specialization – when individual workers
focus on single tasks
„Gains from specialization
„More efficient and productive
„Absolute advantage focuses on who used
the fewest resources, comparative
advantage focuses on what else those
resources could have produced
„Exchange
„Barter – system of exchange in which
products are traded directly for other
products
„Money – medium of exchange

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 Specialization

„Most people consume little of what

they produce and produce little of
what they consume!
„Division of labor – sorts the
production process into tasks to be
carried out by separate workers
„

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 Key Terms
Comparative Advantage
„absolute advantage
„law of comparative advantage
„specialization
„barter
„money
„division of labor
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 SO, WHY IS THE
PPF CURVE
SHOWN AS A
BOWED OUT
SHAPE?
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 Demonstrating
Increasing
Opportunity Cost
and
Constant
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Opportunity Cost
 Building The Production Possibilities Frontier
Soda

S
X
Y
M

0 Pizza
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 A Fully Labeled Production Possibilities Frontier:
The Case When People are Different
Soda

S Unattainable
X
Y
M
Attainable

Unemployment P

0 Pizza
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 Figure 5
Soda

Unattainable
(outside the curve)

Unemployment
(just inside the curve)

0 Attainable Pizza
(on the curve and on the inside)

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 Figure 7
Illustrating Increasing Opportunity Cost
Soda
Opportunity Cost of going from 0 units
of Pizza to 1 unit of pizza
10
9 Opportunity Cost of going from
8 1 unit of Pizza to 2 units of pizza
7 Production Possibilities Frontier
6
5 Opportunity Cost of going
4 from 2 units of Pizza to 3
3 units of pizza
2
1

0 1 2 3
Pizza
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 A Fully Labeled Production Possibilities Frontier:
The Case When People are the Same
Soda

S
X
Unattainable
Y
Attainable M

Z
Unemployment P
0 Pizza
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 Figure 6
Soda

Unattainable
(outside the curve)

Unemployment
(just inside the curve)

0 Attainable Pizza
(on the curve and on the inside)

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 Figure 8
Illustrating Constant Opportunity Cost
Opportunity Cost of going from 0 units of
Soda
9 Pizza to 1 unit of pizza
8 Opportunity Cost of going from 1
7 unit of Pizza to 2 units of pizza
6
5 Production Possibilities Frontier
4 Opportunity Cost of
3 going from 2 units of
Pizza to 3 units of
2 pizza
1

0 1 2 3
Pizza
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 Increasing and Constant Opportunity Cost

„Increasing Opportunity Cost

„Exists when the additional resources required to
produce an additional unit grows as more
output is produced.
„Likely to occur when people are different in their
skills.
„Constant Opportunity Cost
„Exists when the additional resources required to
produce an additional unit remains the same
as more output is produced.
„Likely to occur when people are identical in their
skills.

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