Section 3 Production Possibilities Curves
Preview
Objectives
After studying this section you will be able to:
- Interpret a production possibilities curve.
- Demonstrate how production possibilities curves show efficiency, growth, and cost.
- Understand that a country's production possibilities depend on its available resources and technology.
Section Focus
Decisions about which goods and services to produce affect each of us every day. Production possibilities graphs can help us examine the opportunity cost of these decisions.
Key Terms
- production possibilities curve
- production possibilities frontier
- efficiency
- underutilization
- cost
- law of increasing costs
As the United States entered World War II in 1941, it faced an urgent task: create the weapons and equipment needed to win the war or face defeat. Government agencies took the lead in switching the output of America's factories, farms, and mines from the production of consumer products to the production of military products.
Whether at war or not, nations must choose what to produce. In 2002, farmers in the United States grew about 2 million tons of watermelons. Could they have produced more? If they had, what would have been the opportunity cost?
Production Possibilities
Economists often use graphs to analyze the choices and trade-offs that people make. Why? Because graphs help us see how one value relates to another value. A production possibilities curve, or graph, shows alternative ways to use an economy's productive resources. The axes of the graph can show categories of goods and services, such as farm goods and factory goods or capital goods and consumer goods. The axes can also display any pair of specific goods or services, such as hats on one axis and shoes on the other.
During World War II, consumer goods were in short supply as the nation shifted resources to increase production of planes, ships, artillery, and ammunition. Ration coupons (far left) were used to ensure that civilians got a fair share of consumer goods.
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