# Basic Concepts

### Production Possibilities Curve, Opportunity Cost, Scarcity

Macroeconomics Unit 1 Intro: Basic Economic Concepts (AP Macro)

## (PPC)or(PPF) What is it?

In economics, a production–possibility frontier (PPF), sometimes called a production–possibility curve, production-possibility boundary or product transformation curve, is a graph representing production tradeoffs of an economy given fixed resources. In its microeconomic applications the graph shows the various combinations of amounts of two commodities that an economy can produce (e.g., number of guns vs kilos of butter) using a fixed amount of each of the factors of production.

In this picture of the PPC you see that there are 4 letters, and all 4 of them have a meaning.

As you can see the letters A B and C is on the blue curve which means this country is using all of its resources to make Refrigerators and cars. But X and Y are not on the curve.

Why is that? What does that mean?

X means that the counrty is only using some if its resources to make an equal amount of both refrigerators and cars. Y is where the country is trying to use more than what they already have. This point on the graph is impossible to achieve because they do not have enough resources to make it happen.

## Opportunity Cost

the opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources.

Here's another example: if a gardener decides to grow carrots, his or her opportunity cost is the alternative crop that might have been grown instead (potatoes, tomatoes, pumpkins, etc.). In both cases, a choice between two options must be made.

Question: Describe some of the opportunity costs when you decide to do the following.

A. Attend college instead of taking a job

B. Watch a movie instead of studying for an exam

## Scarcity

Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs.

Example: Precious metals: gold, silver, platinum, uranium, plutonium

Precious gems: diamonds, emeralds, sapphires, etc.

Question: The potential benefit lost to acquire something else is known as

A. Scarcity

B.Opportunity Cost

C. Price

E. Economic Efficiency

## Supply and Demand

A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be.
Haiku: The Laws of Supply & Demand

## Resources (MLA Format)

"Production–possibility Frontier." Production–possibility Frontier. Wikipedia, 9 Apr. 2015. Web. 27 Apr. 2015. <http://en.wikipedia.org/wiki/Production–possibility_frontier>.

"Opportunity Cost." INVESTOPEDIA. Web. 27 Apr. 2015. <http://www.investopedia.com/terms/o/opportunitycost.asp>.

"Wikipedia." Scarcity. 23 Apr. 2015. Web. 27 Apr. 2015. <http://en.wikipedia.org/wiki/Scarcity>.

"The Law of Supply and Demand." Law Of Supply And Demand. Web. 29 Apr. 2015. <http://www.investopedia.com/terms/l/law-of-supply-demand.asp>.