SHIFTS & ROTATIONS IN PRODUCTION POSSIBILITY CURVE

-

 

 Learning Contents:                                                            

  •  Shifts  in  PPC
  •  Rotations in PPC


Change in Production Possibility Curve (Shifting/Rotation)

The change in the Production Possibility curve can be of two types:

 Shift in PPC: PPC will shift when there is a change in productive capacity (resources or technology) with respect to both the goods.

Rotation of PPC: PPC will rotate when there is a change in productive capacity (resources or technology) with respect to only one good.

Shifts in PPC:  The shift in PPC can either be rightward or backward. These shifts bring about a change in the production of both goods in an economy. The shifts in PPC are of two types:



Rightward shift in PPC: Rightward shift in PPC occurs when the resources are increased or technology is improved for the production of both goods that means we can produce more of both the goods. Accordingly, PPC shifts to the right from Initial PPC (AB) to Final PPC (CD).  Refer to Diagram 1



                                                        Diagram-1       

          Leftward shift in PPC: Leftward shift in PPC occurs when the resources are reduced for the production of both goods that means we can produce less of both the goods. Accordingly, PPC shifts Left from Initial PPC (AB) to Final PPC (CD). Refer to Diagram 2

Diagram-2        


Rotations in  PPC It happens when there is a change in productive capacity (resources or technology) with respect to only one good. The rotation can be either for the commodity on the X-axis or for commodity on the Y-axis.



Rotation for commodity on the X-axis: When there is a technological improvement or an increase in resources for the production of the commodity on the X-axis will indicate more production of good X with the same resources. PPC will rotate to the right (not shift) from AB to AC and when there is a technological degradation or fall in the resources for the production of the commodity on the X-axis will indicate less  production of good X. PPC will rotate to the left(not shift) from AB to AD (Refer to Diagram 1.1)



                             Diagram 1 .1                                                         

Rotation for commodity on the Y-axis: When there is a technological improvement or an increase in resources for the production of the commodity on the Y-axis will indicate more production of good Y with the same resources. PPC will rotate to the right (not shift) from AB to CB and when there is a technological degradation or fall in the resources for the production of the commodity on the Y-axis will indicate less  production of good Y. Accordingly, PPC will rotate to the left(not shift) from AB to DB.(Refer to Diagram 2.1)


                                                          Diagram 2.1






Comments

Post a Comment

Popular posts from this blog

Income Elasticity: Luxury Goods, Necessity Goods, and Inferior Goods.

-
Image
  Learning Contents:                                                               ·         Understanding Income Elasticity with respect of luxury goods, necessity goods and inferior goods. The demand for a commodity not only depends on the price of a commodity but also the income level of the consumer. It is a general understanding that a consumer usually prefers to spend more when his income rises and less when his income falls. Sometimes, we might also experience a fall in the demand of certain goods and services even when income rises. Therefore, income elasticity varies with respect to different types of goods and services. The income elasticity measures the percentage change in quantity demanded as a result of percentage change in the income of the consumer. The formula of income elasticity of demand is, The income elasticity measures the demand’s sensitivity or responsiveness to the change in income.   In simple words, it measures to what extent demand changes as a result o
Read more »500

Introduction to Elasticity of Demand

-
Image
Learning Contents: ·          Concept of Demand and Elasticity of Demand ·          Various Concepts of Elasticity of Demand ·          Concept of Elastic and   Inelastic Demand   Concept of Demand and Elasticity of Demand The Law of demand explains that, keeping other factors constant, demand for a commodity is inversely related to its price. In other words, if the price for a commodity rises, the quantity demand decreases. On the other hand, if price falls, quantity demand increases. Therefore, the concept of demand focuses on the direction of change i.e. how demand changes due to a change in price. In simple words, it explains that demand either increases or decreases as a result of a change in price but it overlooks an important aspect i.e. degree of change in demand i.e. How much or to what extent demand changes due to change in price? The degree of change is explained by the elasticity of demand. Therefore,
Read more »500