Episode 9: Society’s PPC

Episode 9: Society’s PPC


So now you know that graphs can be used to
illustrate an individual’s choices. What about the choices facing a society? Well, who makes decisions on behalf of society? The government. What kinds of things does our government provide
for us? [pause] Well, they provide things like roads,
education, national defense, our justice system, research, unemployment benefits — the government’s
trying to do an awful lot of things for us all the time. In a sense the government is just like us
— they’re trying to fulfill THIS many needs, with this many resources. So, how do I tell this story using a graph? First, I want to narrow down the categories
of things that the government tries to provide to two. Why only two? Oh yeah — I can only draw two. OK, let’s say that our society has two categories
of goods and services: military (things like national defense and antiterrorism programs,
etc.) and civilian (which might include roads, parks, or low income support). You, as the economic analyst, have no say
in what the society should do with its resources, but you can examine what we could do. If society takes every bit of its resources
— ALL the land, ALL the labor, ALL the capital, and ALL the entrepreneurial ability — and
puts it into the production of military goods and services, let’s say that we can produce
5000 units of military output. But this leaves NO resources to produce civilian
goods, so we would have ZERO units of civilian output. Note that I’m not making any judgment as to
whether this is a good idea or bad idea; just that it’s a possible choice that can be
made. What if you want to consider having some roads,
or schools, or parks? Let’s say that you’re considering building
1000 units of civilian goods – maybe 1000 schools, or 1000 miles of road – where will
the resources to produce 1000 units of civilian goods come from? [pause] That’s right — you would have to
take the resources away from military production. So military MUST decrease, let’s say, to 4800
units. What’s that? You think I’ve made some kind of a mistake? How could I possibly gain 1000 units of civilian
goods, and only sacrifice (or have an opportunity cost of) 200 units of military goods? Well, consider this: what if “civilian”
represents elementary schools, and “military” is stealth bombers? Which one do you think takes up more resources? There’s no reason why there would have to
be a one-for-one trade off. In fact, it would be unrealistic and restrictive
to assume this. OK; so what if I want more civilian goods
— 2000 schools, or 2000 miles of road — then what? Yup — we would have to shift more resources
away from military production, so that now civilian is 2000, but military is only 4500. This time you’re sure I’ve made a mistake? How could I have sacrificed only 200 military
initially, but now I’m giving up 300 military? No mistake; instead of constant opportunity
cost, as we had with the grades example, we now have increasing opportunity cost, where
our sacrifice will just keep getting bigger and bigger. A PPC that shows increasing opportunity cost
is actually much more representative of how the world works. It happens when resources are not as perfectly
well-suited for one type of production as the other. I’ll come back to this in another video
segment. Following this pattern of increasing opportunity
cost, let’s complete the table. To get 3000 civilian goods, you drop to 4000
military; to get 4000 civilian, you drop to three 3300 military; to get 5000 civilian,
you drop to 2000 military, and if you used every bit of society’s resources for civilian
output, you’ll have 6000 units of civilian goods, but not have any resources left for
military production. Again, as the economic analyst, it isn’t your
job to decide which of these combinations is good or bad. So who does get to decide? [pause] That’s right — the government. Let’s say that you’re not only an economic
analyst, but you’re also presenting your data to the White House. Visuals are good so take a few minutes now
to pause this video, and map out the combinations — with the military on the vertical axis,
and civilian on a horizontal. [pause] Hopefully yours look something like this. Again, it illustrates the inverse relationship
between military and civilian production; the bowed-out shape shows the increasing opportunity
cost. You bring the charts and figures and explain
to the president, “Mr. (or Mrs.) President, this is the production possibilities curve
— sometimes referred to as the production possibilities frontier, since it shows the
outer limit of what can be produced with our current resources.” What point will the President pick? [pause] Right again – it depends. Depends on what? Well, it could be any number of factors: political
ideology could determine where the president would pick. Your typical, or average, Republican, if there
is such a thing, tends to lean more toward military – this is classic “Reagan”
behavior. Democrats are often viewed as the “spenders,”
more on social programs, closer to the civilian axis. Could be world events; in the early 1990s,
after the fall of the Berlin Wall and the Soviet Union, we moved away from military
axis. But after 9/11, we moved toward the military
axis. So the President thinks it over carefully,
and finally says, “I choose… point H.” What do you tell the president? [pause] Hopefully,
you’re making your response respectful, because, after all, this is the president, so how about
something like, “Oh, I’m sorry Mr. (or Mrs.) President – but perhaps I’ve miscommunicated
something to you. This line — the production possibilities
curve — represents the outer boundary of what we can produce right now, even if we
used all of the available resources.” To which the present responds, “Ah yes,
you did make a mistake – but I see now. I choose Point… I.” What do you tell the president? [pause] ”Well,
Mr. (or Mrs.) President, you certainly COULD choose Point I, but then we would have resources
going to waste.” In particular, you might point out that unused
resources are UNEMPLOYED resources. More specifically, unemployed labor makes
for unhappy voters — that usually works with politicians. The point is that while you, the economic
analyst, do the positive analysis, ultimately, the government decides where we should produce
— the normative analysis. You demonstrate the possible outcomes, and
it’s up to the policymakers to make the final choice. NEXT TIME: How changes in resources affect
the PPC. TRANSCRIPT00EPISODE 9: SOCIETAL PPC

24 comments

  • I love how easy you make a topic, my instructor could use a little advice from you

  • What would you tell the president?:

    "Sorry Mr Bush but youre too fucking stupid"

  • @okano186 Our president is Obama..

  • @BMVLifestyle Naaw u dont say lol, course i know but this vid was made before obama came into the presidency,

  • Military and spending for low income civilians……..sounds like Iran lol

  • Photos 1 & Civ Eng Drive

    please come lecture at the university of queensland! we need great teachers like you! Plus you have great artisitic ability and a nice voice. Combining reading, listening, viewing makes learning very easy as we can use all our sensory mediums to process information.

  • @filorice Wouldn't that be fun? If a plane ticket magically falls from the sky, I'll be sure to come. 😉

  • Timothy Chong

    You seriously rock! Thanks from singapore!!

  • Thank you for taking the time to make these videos. Def helps !

  • This is the only video that I don't like bc of the comment that the govt decides where on society's PPC we produce. In the example given, the govt does decide the allocation of govt spending, but the video gives the impression that the govt decides where we produce on "Society's PPC." Which they do not, they definitely have significant influence, but we are not a command socialist economy, we are a market capitalism economy where production decisions are decentralized. Just my interpretation…

  • what do I say to the president? ur dumb mr. president. go back to pre school

  • luckily i did 🙂

  • it will be better if you put subtitle in

  • My Econ 2113 is making us watch these videos and I am so glad he did, they are very well made and help me visualize the concepts. Thank you so much for uploading your work!

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  • Nicolene Basson

    I am supper stresses about my exams coming up. This videos is really helping me understand better. My brain did not want to read or look at a text book any more so this was a very suffusion use of my time to learn what i need to know for my economics exam. Thank you so much!!!

  • fuck the president

  • A very well structured and helpful video,thanks.

  • A Tiger Tank? :v just kidding. Very informative video!

  • So the president is a dumbass

  • 1 elementary would easily take up more resources than 1 stealth bomber, get outta here

  • I'm a new teacher trying to teach economics and I don't understand economics at all. Why did the military go down different amounts each time?

  • "Mr, (or Mrs) President" love that it was made in 2008 and said that.

  • how are these episodes going BACK in time?

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