Factors That Shift the Ppc

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  • Topic: Economics, Production-possibility frontier, Opportunity cost
  • Pages : 5 (1267 words )
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  • Published : February 15, 2013
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PRODUCTION POSSIBILITY CURVE.

In economics, the Production Possibility Curve (PPC) is based under the field of macroeconomics. The production possibility curve (PPC) is also termed as the production possibility frontier (PPF), a production possibility boundary or sometimes called product transformation curve. It is defined as a curve that illustrates the possibility of producing two goods or services within a specified time with all the resources given such as (labour, land, capital and the technical knowledge).

As we can see, here is an example of how the (PPC) looks like, a graph that compares between the productions rates of thetwo goods or services by mapping the production of one good on the x-axis and the production of the other good on the y-axis. It also illustrates the highest level of production that a country or a firmcan afford and the economy is allocating its resources the best way possible. POINTS ON THE PRODUCTION POSSIBILITY CURVE.

The line connecting Points A and B is the productivity curve which separates the attainable from the unattainable. Points along the curve are said to be efficient and are the best possible combinations of resources to enable full utilization and to ensure that the country is at a full employment. All the points shown above on the production possibility curve (PPC)have an indication sign such as, points A and B are choices and the higher level of production. Point C is attainable but it shows waste of resources and inefficiency since the production has not reached its maximum level. Point D at this point due to limited resources and technology, the country or firm is unable to reach the production, whereas all the points outside the PPC are unattainable. All points on a production possibility curve are points of maximum productive efficiency or minimum productive inefficiency.

THE THREE MAIN ECONOMICS CONCEPTS USING THE (PPC) ARE: SCARCITY, OPPORTUNITY COST AND CHOICE. SCARCITY.

One of the main important concepts in economics is scarcity. It means the state of being scarce or in short supply. Scarcity is the fundamental problem and it can be explained as a nation or society are always having unlimited wants to fulfill or satisfy their needs in a world of limited amount of resources of factors of production.

As we can see here is an example of the graph that illustrates point A as scarcity which is unattainable or above the limits of the resources given and that the same resources cannot be utilized to different goods (Product A and B) at the same time. We live in a big, bad world of scarcity. This big, bad world of scarcity is what the study of economics is all about. That’s why we basically subtitle scarcity under The Economics Problem.

CHOICE.

Choice can be explained as an economy has to decide how to use its scarce resources to attain the maximum possible satisfaction of the member of the society. The economic actors (producer, consumer and government) have to make knowledgeable choices in the use of the available resources therefore, all economists are decision makers.

Making a choice normally involves a trade-off - in simple terms, choosing more of one thing means giving up something else in exchange. Because wants are unlimited but resources are finite, choice is an unavoidable issue in economics.

OPPORTUNITY COST.

Opportunity cost measures the cost of any choice in terms of the next best alternative foregone. In other words, though we have alternative uses for resources, we have to select the best way to use these resources. When we choose best alternative, the next best alternative which is left out is known as the Opportunity cost of making a choice. In other words, the benefits we lost and could have achieved from the next best alternative.

Example of opportunity cost in production:-
Opportunity costs may be assessed in the decision-making process of production. If the workers on a farm can produce either one million pounds of...
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