PRODUCTION POSSIBILITIES CURVES
PPC: shows the maximum combination of goods an economy can produce when it uses its resources efficiently in a given time period.
A PPC is a good example of how economists use simple models to explain how the real world operates
OA all car production
OB all cycle production
AB different maximum combinations of cars and cycles which can be produced
All points on PPC eg X using resources effectively
Any point inside PPC, eg W inefficient use of resources
Any point outside PPC, eg Y unattainable
If operating at G on PPC
Produce OC cars and OE cycles
If the economy wants to produce OF cycles, it has to accept OD cars. The opportunity cost of producing the extra cycles EF is to forego production of CD cars
Over time the PPC can shift outwards if:
new resources are found
existing resources are used more efficiently