Production Possibilities- EconMovies #3: Monsters Inc
Hey, how are you econ students, this is Mr. Clifford. Welcome to Econ Movies. In previous episodes, we learned about scarcity and choices. Now lets see how these concepts affect producers by looking at Disney Pixar’s Monster’s Inc. TV:”The Future is bright at Monster’s Incorporated, we warm your home, we light your city, carefully matching every child to their ideal monsterto produce superior screams, refined into clean dependable energy every time you turn something on, Monster’s Incorporated is there. To produce things, we need resources. Economists argue that all resources are scarce. Sometimes these resources are called the Factors of Production. They are: Land Labor Capital- which is like the machinery to produce things, and then someone to bring it all together- the Entrepreneur.Economists like to explain the idea of scarcity by drawing something called the Production Possibilities Curve. The PPC is a graph that shows how an economy can use its resources to produce two different goods. So lets assume that Mestropolis can only produce to different products: scream energy and sushi. This graph shows the production possibilities. The two combinations of the two goods that can be produced using all of their resources. As you can see, they can put all of their resources to produce scream energy, or all of their resources to produce sushi, or some combination in between. But notice, they cannot get at any combination outside of the curve. They cannot put all of their resources into producing both Scream Energy, and producing Sushi. So any combination outside of the curve is impossible. Now is a good time to talk about the difference between consumer goods and capital goods. Consumer goods are obviously made for consumers, made for direct consumption. These are things like cars, odorant and snow cones. Oh no, no, no, don’t worry, its lemon.>Capital goods are made for indirect consumption and are basically tools and machines to produce consumer goods. Now let’s analyze the big “problem”in Monstropolis. Scream shortage. They clearly explain the cause of the shortage.This means that the main resource that is used to produce scream energy, the children, are less productive. Beep.Now, back to the graph. What happens to the Production Possibilities Curve if a resource becomes less productive? The entire curve shifts inward. You should be thinking to yourself, I can see why we are producing less scream energy. But why are we producing less Sushi?The reason why is Scream Energy is a Capital Good. It is a resources. If you don’t have scream energy, you can’t even run a restaurant.Now, what if there was new technology that made the resources that produce scream energy more productive? That is what if there was a way to get more scream?In this case, the Production Possibilities Curve would shift outward. We could produce more of both goods. But at what cost?Well, it turns out, you don’t have to kidnap children.The production possibilities curve is the first of many graphs that you learn in economics. Don’t give up if you don’t fully understand the graph at first. If you stick with it, eventually it will all make sense.