Ppc Essay

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The Production Possibility Curve (PPC) shows the boundaries between attainable and unattainable levels of production for two products; in this case televisions and cars. The level of production is primarily determined by the four Factors of Production (FOPs), namely, labour, capital, land and enterprise. Opportunity Cost is the cost of economic activities that are measured by the terms of its best alternative product that is foregone as a result of producing a certain good. When the best alternative is chosen from a range of alternatives, the second best choice is the opportunity cost. Often in production of goods scarcity occurs, which is a result of finite resources and unlimited wants. Some points in the graph can be attainable in the Short Run. Short run is the period of time where at least one factor of production is fixed, e.g., producing a good with fixed amount of capital, whereas other 3 factors could be altered. Other points are unattainable in the short term but can be achieved in the long run, when all factors of production are variable. Chart 1: Production Possibility Curve for Televisions and Cars The graph above shows the boundaries between attainable and unattainable levels of production between televisions and cars. Let us assume, right now the level of production is in point E, which shows that there is a scarcity in resources and hence the level is inefficient. Points B, C and D show maximum efficiency. Usually most PPC graphs will have the current point in production inside the PPC as maximum efficiency is difficult to achieve because there will always be diversions that will slow down the production, e.g., natural disasters, power cuts, government policies etc. Another reason that makes most countries to remain inside a PPC line is scarcity. It is unrealistic that any country will ever have the perfect amount of resources to produce enough goods to be on the PPC line, even if the resources are not very finite, they will never be the perfect...
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