Risk-Free Versus Risky Assets: Teaching a Portfolio Model with Application to the Stock Market (Berga & Silva)May 27, 2021
The production possibilities curve is an important tool of economics pedagogy. Textbook presentations of this construct, however, appear to rely exclusively on theoretical examples and exercises to demonstrate such concepts as scarcity, unemployment, inefficiency, opportunity cost, and economic growth. We believe that students may benefit from an empirical or “real world” demonstration of these ideas. Therefore, this paper employs macroeconomic data of the United States from 1940 to 1946 to demonstrate the properties of the production possibilities curve. The data indeed may be interpreted to show movements of the economy from inside the curve to the curve itself, movements along the curve, and rightward shifts of the curve.
Ben L. Kyer and Gary E. Maggs