TOPICS
 PPC (Production
Possibilities Curve)
 BCA (Benefit Cost Analysis or Marginal
Analysis)
OUTCOMES
Production
Possibilities
Construct a production
possibilities curve (PPC) when given appropriate data;
what is the production possibilities curve (PPC) or
production possibilities frontier (PPF)?; what does it
show?
What are the assumptions behind
the PPC
Illustrate the following using the
production possibilities curve:
 we must make
choices
 choices have opportunity costs
 the law of increasing costs
 the effect of unemployment
 the effect of productive inefficiency
 how present choices affect future possibilities
 the effect of international trade
 two types of "economic growth"
 it does NOT show the optimum product mix (allocative
efficiency)
Explain WHY the PPC has the shape
that it does  concave to the origin. What is the law of
increasing cost?
Why are there increasing costs?
Why is the PPC concave to the origin? (Draw, Define.
Describe all graphs)
What would the PPC look like if
there were constant costs?
What does a point outside the PPC
represent?
What two things (2 Es) would a
point inside the PPC indicate?
Give some realworld applications
of the production possibilities concept.
Summarize the general relationship
between investment and economic growth.
Describe the two types of economic
growth ("achieving the potential" and "increasing the
potential") and explain how are they shown on a
PPC?
What would cause a PPC to shift
inward?
Use a PPC to illustrate the effect
of international trade
Be able to draw and explain the
Circular Flow Model
Benefit Cost
Analysis
define benefit cost
analysis (BCA) and use it to solve problems
define "marginal" and give
examples
define marginal benefits (MB) and
marginal costs (MC)
know what happens if MC increase?
decrease?
know what happens if MB increase?
decrease?
draw MB and MC on a graph and
explain their shapes
be able to find the optimum choice
from a table of total costs and total benefits and from a
table of marginal costs and marginal benefits
what is a "sunk cost" (or fixed
cost) and why are they ignored when using benefitcost
analysis?
"Don't cry over spilt
milk " If you are deciding whether or not to come to
class today, why does it not matter that you have
already paid tuition? Why is the fact that you have
paid tuition irrelevant when trying to decide whether
to attend class today or skip?
