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Of course, the people of Econ Isle would probably prefer a mix of gadgets and widgets. On the other extreme, if it used all of its resources to produce widgets, Econ Isle could produce 6 widgets, but no gadgets. If all of Econ Isle's resources are used to produce gadgets, it can produce 12 gadgets. So, what are Econ Isle's production possibilities? In other words, capital resources are the tools the people of Econ Isle use to produce widgets and gadgets.Įcon Isle, like all economies, has a limited quantity of productive resources this means that the quantity of goods and services that Econ Isle can produce is also limited. It uses capital resources, which are goods that have been produced and are used to produce other goods and services. The people of Econ Isle work hard to produce all those widgets and gadgets. It uses labor, or human resources, which is the quantity and quality of human effort directed toward producing goods and services. Examples include water, trees, oil, and land used to produce crops. It uses natural resources, which are things that occur naturally in and on the earth that are used to produce goods and services. For example, let's imagine a single economy, the island nation of Econ Isle, that produces only two goods-widgets and gadgets.Įcon Isle is a closed economy, which means that it doesn't trade with any other countries. And in this case, it can easily be shown on a graph. Like most models, the PPF reflects a simplified version of reality. Today we're going to talk about this outer limit by using a simple economic model called the production possibilities frontier-the PPF. Whether you realize it or not, the economy has a frontier-it has an outer limit of economic production. Have you been to a frontier lately? You know, an outer limit or a border? When you hear the word "frontier," you might think of westward expansion, outer space, or even Alaska. It has not been edited for readability, and there may be slight differences between the text and the video. Read more about our award-winning resources »īelow is the full transcript of this video presentation. This lesson received the 2017 Curriculum Silver Award from the National Association of Economic Educators. ![]() ![]() Segment 3: The PPF Illustrates the Law of Increasing Opportunity Cost.Segment 2: The PPF Illustrates Underemployment, Economic Expansion, and Economic Growth.
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