PRODUCTION POSSIBILITIES CURVE

Production possibilities curve (PPC)

- It shows alternative ways on how to use a country's resources.

4 Assumptions of a PPC

- Two Goods (resources are used to produce one or both of only two goods).

- Fixed Resources (quantities of land, labor, capital and entrepreneurship do not change).

- Fixed Technology (information and knowledge, society has about the production of goods and services is fixed).

- Technical Efficiency.

 

1) Efficiency.

   - using resources in such a way to maximize the production of goods and services.

2) Allocative Efficiency.

   - products being produced are the ones that are most desired by the society.

3) Productive Efficiency. 

   - products are being produced in the least costly way and this is any point on the PPC.

4) Under-utilization.

   - using fewer resources than the economy is capable of using.

What Causes PPC/PPF To Shift

1) Technological Change.

2) Change in Resources.

3) Economic Growth.

4) Change in Labor Force.

5) Natural Disasters/ War/ Famine.

6) More Education.