Step 2: Understanding a PPC

Factors of Production

1. Land
   -Natural Resources
2. Labor
   -Workforce - any work exerted
3. Capital
   -Physical - human-made objects used to create other goods
   -Human - knowledge and skills gained through work and education
4. Entrepreneurship
   -must be innovative and a risk-taker

Trade-offs

-alternatives given up whenever a decision is made

Opportunity Cost

-the most desirable alternative given up by choosing one course of action over another

"Guns or Butter"

-where is the government allocating our resources, military or agriculture

Production Possibilities Graph (PPC or PPF)

- shows alternative ways to use resources

• A- "underutilization" attainable, but inefficient
  Causes:
  -war
  -famine
  -recession
  -underemployment/unemployment
  -population decrease

• B- efficient, but producing more guns
• C- efficient, but producing more butter
• D- efficient and attainable
• X- unattainable at the current point in time
  Causes:
  -economic growth
  -technology
  -discovery of new resources