#PRODUCTION POSSIBILITIES CURVE FULL#

Such situations are known as unattainable combinations. This is shown by point D in the diagram given above. On the other hand, the economy cannot operate at any point outside the PPC as, with the given amount of resources, it is impossible for the economy to produce any combination more than the given possible combinations. Both of these situations are attainable combinations. If the resources are not utilised fully and efficiently, the economy will operate inside the PPC. This is shown by points A and B in the diagram given above. If the resources are fully utilised the economy may operate on any point on the PPC according to the amount of each goods produced. The point on the PPC where the economy operates depends on how well the resources are utilised. The PPC shows the maximum available possibilities which an economy can produce. When all these points of different combinations of production of the two goods are joined, they form a Production Possibility Curve. To produce one more unit of Good X, less of Good Y can be produced. This means that more of one good can be produced by sacrificing the other. Similarly for X B amount of Good X, only Y B amount of Good Y can be produced. If X A amount of Good X, it will be possible to produce only Y A amount of Good Y. With the given resources, many combinations of the two goods can be produced in the economy. The production Possibility Curve is given below for such a situation. Let us consider an economy where two goods, good X and good Y are produced is produced. Therefore, when resources are transferred from one product to another, their productivity or efficiency in production decreases.

Resources are not equally efficient in the production of both goods.

These resources are fully and efficiently utilized.

Using the given resources only 2 goods can be produced.

Although, theses resources can be transferred from one use to another.

The amount of resources in an economy is fixed.

The concept of Production Possibility Curve is based on the following assumptions – Assumptions for Production Possibility Curve (PPC) The Production Possibility Curve is also known as the Production Possibility Frontier, Production Possibility Boundary, Transformation Curve, Transformation Frontier or Transformation Boundary.

The PPC is the locus of various possible combinations of two goods that can be produced with given resources and technology. Since the choice is to be made between infinite possibilities, economists assume that there are only two goods being produced. Production Possibility Curve (PPC) is the graphical representation of the possible combinations of two goods that can be produced with given resources and level of technology.

What is Production Possibility Curve (PPC)? This is where the concept of Production Possibility Curve (PPC) comes into the picture. Thus, the society has to decide what to produce out of an almost infinite range of possibilities. In an economy, even if all the resources are used in the best possible manner, the capabilities of the economy are restricted due to scarcity of resources.

Further suppose that this technique could not be applied to grain production.Production Possibility Curve in Economics (PPC)ĭue to scarcity of resources, the society cannot satisfy all its wants. Suppose a new technique was discovered that allowed the wine producers to double their output for a given level of resources. Experienced wine producers are not necessarily efficient grain producers, and grain producers are not necessarily efficient wine producers, so the opportunity cost increases as one moves toward either extreme on the curve of production possibilities. In this example, some factors of production are suited to producing both wine and grain, but as the production of one of these commodities increases, resources better suited to production of the other must be diverted. As more of one product is produced, increasingly larger amounts of the other product must be given up. The shape of this production possibility frontier illustrates the principle of increasing cost. A combination outside the curve such as point b is not possible since the output level would exceed the capacity of the economy. The economy could choose to operate at less than capacity somewhere inside the curve, for example at point a, but such a combination of goods would be less than what the economy is capable of producing.

#PRODUCTION POSSIBILITIES CURVE FULL#

The PPF shows all efficient combinations of output for this island economy when the factors of production are used to their full potential.

Production possibilities curve