If you're seeing this message, it means we're having trouble loading external resources on our website.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

Main content
Current time:0:00Total duration:6:49
AP.MACRO:
MOD‑1 (EU)
,
MOD‑1.B (LO)
,
MOD‑1.B.4 (EK)
,
MOD‑1.B.5 (EK)
AP.MICRO:
MKT‑1 (EU)
,
MKT‑1.C.4 (EK)
,
MKT‑1.C.5 (EK)

Video transcript

let's say that we have some country let's call it utensil on Dia that can only produce one of two goods or some combination of them so it can produce forks and it can produce or it could produce spoons and so this axis is the quantity of forks this axis is a quantity of spoons and let's say that if it put all of its energy into forks well it would produce that many Forks and no spoons and but then if it tried to focus some of its energy some of its resources on spoons well then it would produce fewer Forks and then the more spoons it produces it will produce fewer and fewer Forks all the way to the point that if it only focused on spoons well it could produce that many but then it would produce no Forks what this curve is and we touch on it in other videos this is the production possibilities curve for our country of you test utensil and eeeh that makes utensils and obviously most countries are much more complex they don't only produce some combination of two things but this helps us this is a nice model for understanding what countries might be capable of now one way to understand this production possibilities curve is it say it shows what can be efficiently produced by this country if it put if it efficiently utilized all of its resources then it will produce some combination of forks and spoons that sit on the production possibilities curve so at this point right over here this combination of spoons which would be that many spoons and that many Forks this combination over here this would be efficient that point X would be an efficient production for utensil on dia so at this point right over here let's call that point y now what happens if utensil on dia goes into some type of a recession for whatever reason it's not able to use its resources as efficiently and we're talking about resources we're talking about land we're talking about maybe it's factories we're talking about the materials that has maybe it's labour well in that situation let's say it was operating efficiently here but then the recession happens and so then it operates right over here let's call this point right over here z this would be an inefficient use of its resources sitting behind the production possibilities curve so this is in efficient just like that and so one question you might have is well what about points that are beyond the production possibilities curve like point let's just call that point a right over there what about that point well unless you have more inputs unless you have more land more capital more labor if you don't change the resources here this is actually going to be an unattainable point for utensil andia but let's say you really want to reach it how can that happen well you can actually have investment or you could have more land or more labour so let's think about that scenario so let me draw the two axes so that's my fork axis that's the quantity of Forks that utensil and a will produce in the year this will be the spoon axis right over there and let's draw our original production possibilities curve so I'll try to make it look pretty similar to what we had before so that's our original production possibilities curve another way of thinking about it is it's showing the trade-off between producing forks and spoons you can actually think about what is the opportunity cost of producing an incremental spoon in terms of forks how many Forks do you have to trade-off because remember there's scarcity at play you don't have an infinite amount of metal to prepare to produce things with an infinite amount of labor an infinite amount of factories but let's say utensil andia they are able to get some more land on which to build factories maybe they build some more factories so capital goes up maybe some people migrate to utensil on dia so in that situation you would have growth so this would be and your production possibilities curve would actually shift outward so here we are showing let me make it a little bit we are showing a situation right over here this is still a production possibilities curve but we're showing what happens when you have growth and once again what are the grot drivers of growth well this could be your the amount of land that you have goes up the amount of capital that you have goes up Capital could be things like factories it could be machinery you could have people more people are able to help produce the spoons are forks you could just have better technology for producing spoons and forks sometimes people will even talk about entrepreneurial spirit that people are able to figure out better ways of combining these resources so that you could produce more spoons or Forks but let's imagine now the other scenario let's imagine a scenario where utensil andia gets into a war with plate land eeeh and plate land iya sends their bombers in and starts destroying some of the factories of utensil and eeeh and so what will happen in that situation so before the war this is that production possibilities curve for utensil on dia but now because of the war maybe plate lan dia is able to take some land from utensil on dia maybe it's able to destroy some of the factories and other forms of capital maybe people flee utensil and eeeh so there is less labor and maybe for whatever reason they can support less technology or they forget how to use some of their technology because the war is so long and protracted well in that situation your PPC you would see contraction and contraction I could depict it let me shift my PPC my production possibilities curve inward just like this so this is a situation where we are seeing a contraction so big picture here your production possibilities curve is exactly what it says it is it shows what can a what is the potential combination of in this case goods that this nation can produce and if you're sitting on the curve it shows that that nation that country is efficiently using as its resources if you're sitting within the curve it's inefficiently using those resources and if you're on the right of the curve or beyond the curve well that's a situation where if you don't change the inputs all else equal this would actually be unattainable the way that you actually do attain get two points beyond the curve is by shifting the curve itself by having more land more capital more labor or more technology which we see in this middle scenario
AP® is a registered trademark of the College Board, which has not reviewed this resource.