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

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