Chapter Two
The Production Possibility Model,
Trade, and Globalization

Learning Objectives
After you teach the material in this chapter, your students should be able to do the following:

1. Demonstrate opportunity cost with a production possibility curve.

2. State the principle of increasing marginal opportunity cost.

3. Relate the concept of comparative advantage to the production possibility cure.

4. State how, through comparative advantage and trade, countries can consume beyond their production possibilities.

5. Explain how globalization and outsourcing are part of a global process guided by the law of one price.

Chapter Outline
This is meant to be an outline and summary of what your students read in this chapter in the text, both in terms of concepts and examples. Headings and subheadings are tagged with the number of the learning objective (LO) to which the material in that section most closely relates and the associated PowerPoint slide numbers, so you may also use this to help you outline your lecture. Material followed by a ( is new to the 8th edition.

• The Production Possibility Model, Trade, and Globalization

• The three main coordination problems are reviewed, and students are reminded about the concept of opportunity cost, which will be central in this chapter to understand production possibilities.

• The Production Possibilities Model (LO1) [PPT Slides 3 & 4]

• Production Possibility Table: “a table that lists a choice's opportunity costs by summarizing what alternative outputs you can achieve with your inputs.”

• Output: “a result of an activity.”

• Input: “what you put into a production process to achieve an output.”

• A Production Possibility Curve for an Individual (LO1) [PPT Slides 5 & 6]

•