Production Possibility Curve

Topics: Economics, Good, Economics terminology Pages: 1 (250 words) Published: May 19, 2013
Each point on the production possibilities curves represents some maximum satisfaction or outcome of two products. The graph shows that the customers must either choose which product suits their desires. More cars means less food and vice versa. This will therefore indicate that the total supplies of resources are limited, thus the total amounts of cars and food that our economy is capable of producing are limited. Limited resources mean a limited satisfaction. A choice must be made to as what quantities of each product do the customers want to be produced. This shows us that the customers cannot have maximum satisfaction of both cars and food to satisfy their wants and this is shown on the Graph

Opportunity Cost
When resources are scarce, the decision to produce a particular good or service involves an opportunity cost, the sacrifice of a good or service that might have been produced instead. Opportunity cost describes the fact that when we employ resources in a particular way, we are not making a decision to produce these goods or services but we are also deciding not to produce some other goods or services. The fact that we decide not to produce is the opportunity cost of what we do produce. For example, a farmer has one acre of land suitable for growing either corn or potatoes. If the farmer plants the corn, the opportunity cost of the corn is equal to one acre of potatoes, because resources are limited; the production of any good
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