AP Macroeconomics AMSCO Guided Notes
1.2: Opportunity Cost and the Production Possibilities Curve (PPC)
AP Macroeconomics Guided Notes
AMSCO 1.2 - Opportunity Cost and the Production Possibilities Curve (PPC)
Essential Questions
- What is the purpose of the production possibilities curve (PPC)?
I. Making Economic Choices
1. Why must societies choose between producing different goods and services?
A. Trade-offs
1. What is a trade-off and how does it relate to economic decision-making?
2. What are examples of trade-offs that individuals, businesses, and governments face?
B. Opportunity Costs
1. What is opportunity cost and how does it differ from a trade-off?
2. Why do opportunity costs exist regardless of which choice is made?
II. The Production Possibilities Curve (PPC)
1. What are the three key assumptions that economists make when creating a production possibilities curve?
A. Interpreting the PPC
1. What does each point on a production possibilities curve represent?
2. What does it mean when a society's production is at a point inside the PPC rather than on the curve?
3. Why is it impossible for a society to produce at a point beyond the PPC with current resources?
4. How does the concept of increasing opportunity cost explain why the PPC curves rather than remaining straight?
III. Uses of the PPC
1. How can the PPC be used to illustrate economic growth?
2. What are the three main drivers of economic growth?
IV. Limitations of the PPC
1. What are the main limitations of using the production possibilities curve as an economic model?
2. Despite its limitations, what practical value does the PPC provide to managers and economists?
Key Terms
trade-off
opportunity cost
production possibilities curve (PPC)