Production Possibilities and Opportunity Cost
– Every working day on worksites in Canada, 17 mil. People produce goods
and services valued at $5 billion.
– Limited by available resources and technology.
– If we want to increase production of one thing, we have to limit production
of something else (tradeoff)
Production possibilities frontier – the boundary between those combinations
of goods and services that can and cannot be produced.
Example: pizza and cola
Production efficiency – achieved if we produce goods and services at the lowest
possible cost. Occurs at all points on the PPF.
Insufficient production on points inside the PPF because we are giving up more
than necessary of one good to produce a certain quality of the other good.
Point Z on graph – 3 million pizzas, 5 million cans of cola, but have enough
resources to produce 3 million pizzas and 9 million cans of cola. Pizzas cost more
cola than necessary – we can get them for a lower cost.
– Only when one produces on the PPF can they get the lowest possible cost of
Production is inefficient inside because resources are either unused or
misallocated or both
unused when they could be working – Example: we may leave some factories idle
or some workers unemployed.
– Misallocated when they are assigned to tasks for which they are not the
best match. Example: assigning pizza chefs to work in a cola factory and
cola producers to work in a pizza shop. Get more of each if we assign them
to tasks matching their skills.
Every choice on the PPF involves a tradeoff
Example: when Parliament want