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Module 2 krugman 1
Module 2
Models and the Production Possibilities Frontier
What’s New in the Fourth Edition?
• Worksheets for use in the classroom.
• New Economics in Actions case study.
Module Objectives
• Why are models an important tool in the study of economics?
• What does the production possibility frontier tell us about efficiency, growth, and opportunity
cost?
• How are increases in the availability of resources and improvements in technology two sources of
economic growth?
Teaching Tips
Models Take Flight in Economics
Creating Student Interest
• Ask students why economists (and economics students) use simplified models. (Because the real
• Construct a paper airplane during class. When you are finished, ask the students what you have
made. Give your airplane a test flight. Have the class identify the ways the paper airplane is like a
real airplane (e.g., it has wings; it flew). If they have trouble, remind them that they knew what it
was, so there must have been some things in common! Have the class identify the ways it is not
• An alternative to the paper airplane example is a simple smiley face drawn on the board or an
emoticon used in text messages—:) or ☺. Use these representations to have the same discussion
with students. How is the image like a real smiling face and how is it different? Why is it so useful
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Presenting the Material
• In this module students will be introduced to one economic model—the production possibilities
Trade-offs: The Production Possibility Frontier
Creating Student Interest
• Introduce the production possibilities model by evoking the image of a person (or people) stranded
on an island—this could be Robinson Crusoe, Gilligan, Tom Hanks in Cast Away, contestants on
Survivor. Have your students select the image that they can relate to the most. Present that as an
example of the simplest economy you can imagine. Explain to students that you are going to build
a model of the economy on the island. Have students list the limited resources available on the
island (e.g., trees, sand, water, fish, labor, entrepreneurship). Then have the class consider the
immediate needs that must be met using these resources (food, shelter). Explain that the model
will represent production in the island economy.
Presenting the Material
• Use students “producing” grades as a simple example of a production possibility frontier. Put
“Economics” on the vertical axis of a graph and “Accounting” on the horizontal axis. Students’
Module Outline
I. Models in Economics: Some Important Examples
A. Models allow economists to see the effects of only one change at a time.
B. Economic models make use of mathematical tools, especially graphs.
II. Trade-offs: The Production Possibility Frontier
A. The graph of the production possibilities frontier shows the possible combinations of two goods
that can be produced given the scarce resources of the society.
Figure 2-1
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C. The production possibility model illustrates the concepts of:
1. Efficiency: Any point on the frontier represents an efficient use of resources, and any
combination of goods inside the frontier represents a point of inefficiency.
Figure 2-3
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Case Studies in the Text
Economics in Action
Lights, Camera—But, Where’s the Action?—Much of the money made off the movie series Star Wars
comes from the affiliated merchandise. When The Force Awakens opened, some of the main characters’
action figures were in low supply or missing altogether.
Ask students the following questions:
Module 2 krugman 5
Handout 2-1
Date_________ Name____________________________ Class________ Professor________________
Production Possibilities
Consider a country that can produce wheat or airplanes. Here are the points on the production possibility
frontier:
Maximum annual output options
Wheat
Airplanes
A
1,000
0
B
800
150
C
600
250
D
400
325
E
200
375
F
0
400
What is the opportunity cost of expanding production from 150 airplanes to 250 airplanes?
Why is the production possibility graph negatively sloped?
Why is it bowed out from the origin?
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Handout 2-2
Date_________ Name____________________________ Class________ Professor________________
Production Possibilities
Purpose: Create a production possibilities frontier for widgets and whatsits that can be produced with
a given allocation of capital and labor.
Capital:
Two desks
Paper (cut into half-sheets)
Two staplers
Labor:
Four or six volunteers
Product:
Widget—a piece of paper folded twice into a square and stapled
Whatsit—a piece of paper folded three times
Instructions:
Step 1: Count the number of widgets that can be produced in 30 seconds using all the resources. Plot
this point on the production possibilities graph on the following page.
Step 2: Count the number of whatsits that can be produced in 30 seconds using all the resources. Plot
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