Production Possibility Curve
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The PPC can illustrate the various combinations of goods or services that are possible if an economy uses all of its available resources (PRODUCTION POSSIBILITIES) a. Does this country operate at full capacity i. Does it utilize the best available technology? ii. Is it producing at full potential? iii. What a country produces with its limited resources is an important question. It doesn't matter how big you are but how you use your resources that counts- b. The curve is based on assumption that the country only produces two goods. c. If it devotes all its resources to making one product, it will not be able to make any of the other one. d. The choices that a country has to make about the use of scarce resources available and the associated sacrifice of1 product for the other. (OPPORTUNITY COST) 1. Production Possibility Curve September-25-08 8:35 AM Unit 1 Page 1
Transcript of Production Possibility Curve
The PPC can illustrate the various combinations of goods or services that are possible if an economy uses all of its available resources (PRODUCTION POSSIBILITIES)
a.
Does this country operate at full capacityi.Does it utilize the best available technology?ii.Is it producing at full potential?iii.
What a country produces with its limited resources is an important question. It doesn't matter how big you are but how you use your resources that counts-
b.
The curve is based on assumption that the country only produces two goods.c.If it devotes all its resources to making one product, it will not be able to make any of the other one.
d.
The choices that a country has to make about the use of scarce resources available and the associated sacrifice of1 product for the other. (OPPORTUNITY COST)
1.
Production Possibility CurveSeptember-25-08
8:35 AM
Unit 1 Page 1
COKE
PIZZA
Along this curve, an economy uses all of its available resources.a.It shows the inverse relationship between the 2 products.b.
The PPC curve is concave to the origin because:2.
Opportunity cost is the cost of something in terms of what must be given up in order to obtain it. (sacrifice)
3.
The combination of products measured shows an inefficient use of available resources, misallocation of resources
4.
Economic choices- choices of individuals are endless for each decision made by a producer, the concept of the PPC could be used in order to map out the various options.
a.
Economic tradeoffs- the economy must sacrifice some of the goods to be produced for more of the other goods that are produced.
b.
Economic scarcity - limited amount of natural resources (THE LAW OF SCACRCITY).it shows the maximum amount of goods available.
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"LAW OF SCARCITY"; it is based on the number of choices that are available to an individual. The PPC is not fixed because of the number of choices that individuals are faced with, and the decisions that a producer makes (TECHNOLOGICAL CHANGES).
6.
Law of increasing relative cost- the increase in the relative cost of producing more of item A, measured by the numbers of another item B, that could be produced with the same resources.
7.
Relative Cost - Cost of producing one item, A, expressed in terms of the numbers of another item, B, which must be given up in order to produce A. (OPPORTUNITY COST).
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Unit 1 Page 2
