production possibility curve

• A ppc curve shows the maximum output of 2 types of products and combination of these products that can be produced with existing resources and technology
• • Opportunity cost can be shown using a production possibility curve (PPC)
• • A point within the curve signifies like X, represents inefficiency
  • A point outside the curve, like Y, represents combinations that cannot be produced due to the lack of resources

  
• • Many PPC diagrams show capital goods & consumer goods on the axes
  • Capital goods are assets that help a firm or nation to produce output (manufacturing).
  • Consumer goods are end products & have no future productive use.
• The use of PPC to depict the maximum productive potential of an economy:

  • Demonstrates the possible combinations of the maximum output an economy can produce using all of its resources (factors of production)
  • Point A: resources used to produce only consumer goods (300)
  • Point B: resources used to produce only capital goods (200)
  • Points C & D represent full (efficient) use of an economy's resources as they fall on the curve. At C, 150 capital goods and 120 consumer goods are produced
• The use of PPC to depict opportunity cost:

  • To produce one more unit of capital goods, the economy must give up production of some units of consumer goods (limited resources)
  • Moving from point C (120, 150) to D (225, 100) incurs an opportunity cost of producing an additional 105 units of consumer goods, which is 50 capital goods
• The use of PPC to depict efficiency, inefficiency, attainable and unattainable production:

  • Producing at any point on the curve represents productive efficiency
  • Any point inside the curve represents inefficiency (point E)
  • Attainable production, using the current level of resources available, is any point on or inside the curve. Any point outside the curve is unattainable (point F)
• • As opposed to a movement along the PPC described above, the entire PPC of an economy can shift inwards or outwards
• Economic growth occurs with an increase in the productive potential of an economy
• This is shown by an outward shift of the entire curve
• More consumer goods and more capital goods can now be produced using all available resources
• The shift is caused by an increase in the quality or quantity of the available factors of production
• Improving the quality of a factor of production can be done through training and education on labor, leading to a more productive workforce and increased production possibilities
• Increasing the quantity of a factor of production can be achieved through changes in migration policies, allowing more foreign workers to work productively and increasing production possibilities
• Economic decline happens when there is any impact on an economy that reduces the quantity or quality of available factors of production
• One example is the Japanese tsunami of 2011, which devastated Japan's production possibilities for many years, shifting their PPC inwards and resulting in economic decline
• movements along the ppc curve results in opportuiny cost . This means that in order to produce more of one product there must be less of another

  
• Reasons for an outward shift on a ppc curve

  • Increase in quality of factors of production
  • discovery of new resources
  • land reclaimation
  • migration of the population