Production Possibilities Curve (Pcc)

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  • Topic: Economics, Opportunity cost, Production-possibility frontier
  • Pages : 3 (768 words )
  • Download(s) : 536
  • Published : May 23, 2013
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PRODUCTION POSSIBILITIES CURVE:

A curve that illustrates the production possibilities of an economy--the alternative combinations of two goods that an economy can produce with given resources and technology. A production possibilities curve (PPC) represents the boundary or frontier of the economy's production capabilities, hence it is also frequently termed a production possibilities frontier (PPF). As a frontier, it is the maximum production possible given existing (fixed) resources and technology. Producing on the curve means resources are fully employed, while producing inside the curve means resources are unemployed. The law of increasing opportunity cost is what gives the curve its distinctive convex shape.

Production Possibilities Curve
Production Possibilities Curve
Production possibilities is an analysis of the alternative combinations of two goods that an economy can produce with existing resources and technology in a given time period. This analysis is often represented by a convex curve.

A standard production possibilities curve for a hypothetical economy is presented here. This particular production possibilities curve illustrates the alternative combinations of two goods--crab puffs and storage sheds--that can be produced by the economy. The Set Up

According to the assumptions of production possibilities analysis, the economy is using all resources with given technology to efficiently produce two goods--crab puffs and storage sheds. Crab puffs are delicious cocktail appetizers which have the obvious use of being eaten by hungry people, usually at parties. Storage sheds are small buildings used to store garden implements, lawn mowers, and bicycles.

This curve presents the alternative combinations of crab puffs and storage sheds that the economy can produce. Production is technically efficient, using all existing resources, given existing technology. The vertical axis measures the production of crab puffs and the horizontal axis...
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