Production Possibility Curce
Production Possibilities Curve (PPC)
The Production Possibilities Curve (PPC) is used to show the economic concepts of scarcity, choices and opportunity cost.
The PPC is a graphical representation showing maximum combinations of output (goods and services), a nation can produce with limited economic resources in a fixed period time.
Assumptions of the production possibilities curve: I. Only 2 goods will be illustrated II. The amount of resources is fixed III. State of technology is constant
Example: Country X produces 2 goods – cars and airplanes. The PPC can be explained by use of a graph or table: Production Possibilities | Car | Airplane | A | 0 | 10 | B | 1 | 9 | C | 2 | 7 | D | 3 | 4 | E | 4 | 0 |
Table 1. Various combinations
Figure 1. Production Possibilities Curve
In this case, points A, B, C, D, E is PPC of country X. Points A to E shows different combinations of the maximum output of 2 goods which may be made in full employment and the use of all available resources in the economy.
If all the factors of production are used in the production of cars only, country X can produce 10,000,000 units of car. However, if all factors are used in the production of airplanes, then, 4,000 units of airplanes can be produced. There are also other combinations that show different possibilities. For example, Point C shows producing 3,000 units of airplanes and 4,000,000 units of car.
POINTS INSIDE THE PPC * Attainable combinations BUT represent combinations which do not fully or efficiently employ resources (e.g. point F). * Involve unemployment or underemployment of resources.
When the nation is operating inside the current production possibilities curve—for example, at point F — it is a result of unemployed resources from less than maximum efficiency in the use of resources in a full-employment economy. At point F, only 4,000,000 units of cars and 2,000 units of airplanes are produced. Given the available resources,
The Production Possibilities Curve (PPC) is used to show the economic concepts of scarcity, choices and opportunity cost.
The PPC is a graphical representation showing maximum combinations of output (goods and services), a nation can produce with limited economic resources in a fixed period time.
Assumptions of the production possibilities curve: I. Only 2 goods will be illustrated II. The amount of resources is fixed III. State of technology is constant
Example: Country X produces 2 goods – cars and airplanes. The PPC can be explained by use of a graph or table: Production Possibilities | Car | Airplane | A | 0 | 10 | B | 1 | 9 | C | 2 | 7 | D | 3 | 4 | E | 4 | 0 |
Table 1. Various combinations
Figure 1. Production Possibilities Curve
In this case, points A, B, C, D, E is PPC of country X. Points A to E shows different combinations of the maximum output of 2 goods which may be made in full employment and the use of all available resources in the economy.
If all the factors of production are used in the production of cars only, country X can produce 10,000,000 units of car. However, if all factors are used in the production of airplanes, then, 4,000 units of airplanes can be produced. There are also other combinations that show different possibilities. For example, Point C shows producing 3,000 units of airplanes and 4,000,000 units of car.
POINTS INSIDE THE PPC * Attainable combinations BUT represent combinations which do not fully or efficiently employ resources (e.g. point F). * Involve unemployment or underemployment of resources.
When the nation is operating inside the current production possibilities curve—for example, at point F — it is a result of unemployed resources from less than maximum efficiency in the use of resources in a full-employment economy. At point F, only 4,000,000 units of cars and 2,000 units of airplanes are produced. Given the available resources,
References: * http://ingrimayne.com/econ/Introduction/ * http://kingwatch.co.nz/Christian_Political_Economic/ * http://www.economist.com/ * http://economics.about.com/ * http://syneva.com