PRODUCTION POSSIBILITY CURVES

Diagram explaining the maximum

combination of producs that can be produced
in an economy given its resources
ASSUMPTIONS UNDERLYING THE PPC

1. It looks at production over a given period of time (a
year)
2. It assumes resources are fixed during this time
period.
Units of clothing(Good A) 0 1 2 3 4 5 6
Units of food (Good B) 12 10 8 6 4 2 0
TABLE
DIAGRAM
Production Possibilities Curve Figure 1
0
2
4
6
8
10
12
14
0 1 2 3 4 5 6 7
Good A
G
o
o
d

B










When a PPC curve is a straight line, usually it is an exception, this means that as
you produce more of one thing you constantly give up the same proportion of
another thing as the scenario would be that the factors of production are 100%
mobile. CONSTANT OPPORTUNITY COST PER UNIT
Production Possibilities Curve Figure 2
0
2
4
6
8
10
12
14
0 1 2 3 4
Good A
G
o
o
d

B
Units of clothing(Good A) 0 1 2 3
Units of food (Good B) 12 10 6 0

Generally the ppc is curved outwards:

This shows that resources are not
ideally suited to the production of
different things.

e.g. in the example above, the labour
producing certain civilian goods, e.g.
farmers, florists, are probably not
going to be as adept at producing
military goods.
Fig 1 shows a production possibility curve for a country that can
produce various combinations of two goods x and y.
Fig shows a countrys ppcs for 2 years. The prod. Point shifts
outward from point A in 2000 to point B in 2003. The
following are possible things that might have happened:

(i) Potential output has increased
(ii) Actual output has increased
(iii)A fuller use has been made of resources.


Which is correct?



REASONS FOR SHIFT IN PPC

a) Ecconomic growth
b)Improvement in quantity and
quality of natural resources
a) Increase in quantity and quality
of capital(investment)
b) Increase in the size of the
population
c) size, health, education, motivation
and skill levels of labour force
d) New Technology developement
SLOPES OF PPCS--If the relative ease with which one
good can be produced over another will result in the curve being taller
or flatter

The more highly specialized
resources are, the more bowed
societys ppc
On the other extreme, if all
resources were suitable for all
production processes the curve
would be flat.
Production Possibilities Curve Figure 1
0
2
4
6
8
10
12
14
0 1 2 3 4 5 6 7
Good A
G
o
o
d

B