Unit 1 - Production Possibility Curve

What is Production Possibility Curve (PPC)?
It is a graph that is showing the most a society can produce if it uses every available sources to the best of its ability. What does it actually mean? It means that we are using all the natural/man made resources efficiently with out wasting any and with full employment.

When to use the Production Possibility Graph?
Assume that there are ONLY 2 goods are produced with FULL employment and fixed resources. It needs fixed state of technology (factory, machines,...) and NO international trade!

 

As the graph shown, the relationship between 2 goods (x and y axis) is described by the opportunity cost.
Opportunity cost is when we choose our next best alternative. Or we can say it as a trade offs, which means we have to give up something to get another.

• A: the products are attainable but is produced inefficiently, hence it remains inside the curve

• B: the products are attainable, are produced efficiently but are making more of goods y.
• C: the products are attainable, are produced efficiently but are making more of goods x.
• D: both products are attainable and are produced efficiently.
• X: It's NOT possible to make/produce.

When can we move up to point X?
-Technology improvement
-Economic growth
-Discovering new resources


When are we at point A?
-Decrease in population
-Under employment
-War, famine, disasters,...