PPC

• Production possibility curve (PPC)


  Shows the maximum combination of any two categories of goods and services that can be produced in an economy
• The PPC shows the productive capacity of the economy
• A country can only produce two types of goods: wooden furniture and olive oil
• If producers wish to increase production of olive oil from O1 to O2


  The amount of wooden furniture manufactured will have to decrease from W1 to W2
• Opportunity cost


  The amount of wooden furniture sacrificed to produce additional olive oil
• Production points on PPC


  • Point A
  • Point B
  • Point C
  • Point D
  • Point E
  • Point F
• Point A

  All resources are dedicated to the production of wooden furniture
• Point B


  All resources are dedicated to the production of olive oil
• Point C

  W1 tonnes of wooden furniture and O1 litres of olive oil are produced
• Point D


  W2 tonnes of wooden furniture and O2 litres of olive oil are produced
• Point E


  This point is beyond the production possibility curve and lies outside the productive capacity of the economy
• Point F


  This point is within the productive capacity of the economy
• The production possibility curve (PPC) represents the maximum combination of goods and services which can be produced in an economy
• The PPC diagram is a graphical representation of the maximum combination of the amounts of goods and services that can be produced in an economy
• Conditions to be on PPC

  1. All resources are used

  2. Efficiency in the use of resources
• A movement along a PPC results in an opportunity cost
• A movement along the PPC from point X to point Y

  Means more consumer goods are produced at the expense of fewer producer goods
• For a country to shift its PPC outwards, there must be economic growth
• Ways to achieve economic growth

  • An increase in the quality of factors of production
  • An increase in the quantity of factors of production
• Economic growth


  Causes an outward shift of the PPC
• Advances in technology will result in higher productivity and output for an economy
• Detrimental changes can cause the PPC to shift inwards
• Detrimental changes that can shift PPC inwards


  • A powerful storm
  • A natural disaster
  • A war
• Low-lying areas of Bangladesh are prone to flooding each year
• During times of severe flooding, roads and railways are damaged