PPC PROPERTIES , ATTAINABLE & UNATTAINABLE OUTPUT, POTENTIAL AND ACTUAL LEVEL OF OUTPUT

 Learning Contents: 

·         Basic Properties of PPC 

·         Attainable and Unattainable combinations of output

·         Potential and Actual  level of output on PPC

Basic Properties of PPC

1. Production Possibility Curve slopes Downward

The slope of the Production Possibility Curve is downward from left to right that indicates that the economy can produce more of one commodity only when the production of other commodity is sacrificed as the resources are limited. In other words, the Production of both goods cannot be increased. More of Good-X can be produced only with less of Good-Y.

2. Production Possibility curve is concave to the point of origin

The shape of PPC is concave to the point of origin or bowed outwards because of the increasing marginal opportunity of cost. The increasing marginal opportunity cost means for every additional unit of a good, the sacrifice of another unit of good increases. The opportunity cost tends to increase as resources are used- specific which means efficiency suffers when resources are shifted from the production of more specialized usage to less specialized usage. For e.g. what will happen if an Economics teacher is advised to teach Physics? Obviously, the efficiency of his teaching would deteriorate as he is specialized in teaching economics rather than physics. 

The concavity shape of PPC can be understood from diagram 4 shown below indicates an economy produces two goods say, shoes and cosmetics, initially if the economy produces 10 units of cosmetics and 8 units of shoes and then if the output of cosmetics increases by 10 units (to 20), it must sacrifice 1 unit of shoes and if it now wishes to increase the output of cosmetics by a further 10 units(to 30 units) it must sacrifice 2 units of shoes, rather than 1 unit; hence opportunity cost increases the more a good is produced or loss of output of shoes tend to increase. The shape of the PPF gets steeper as more cosmetics are produced, indicating a greater sacrifice in terms of units of shoes foregone.

ATTAINABLE AND UNATTAINABLE COMBINATIONS OF OUTPUT ON PPC

Attainable combinations of Output:

All points on the PPC or inside the PPC are attainable or achievable combinations of output, with the given resources and technology. Thus any point on the boundary line or within the boundary line of production is a point that shows attainable combination of the output of two goods.

a. Efficient Points: Any point on the boundary line indicates fuller or efficient utilization of resources is called efficient points that mean the economy is using the resources to the fullest.

 b. Inefficient Points: Any point within the boundary line would indicate the underutilization of resources that means resources are not used at full capacity or more could be produced further.

Unattainable combinations of Output:

Any point outside the boundary line shows an unattainable or not achievable combination of the output of two goods. We can achieve the point only when technology or resources are increased and the economy shifts its PPC to the right. Such movement is considered as economic growth. Below mentioned Diagram 2 shows an attainable and unattainable combination of output.

               Diagram 2: Attainable or Unattainable combination of output

 POTENTIAL AND ACTUAL LEVEL OF OUTPUT ON PPC

Potential Level of Output: It is the maximum level of output that we can achieve through efficient and fuller utilization of given resources, along with the given technology. PPC indicates the potential level of output. Diagram 3 explains the production of wheat and apples and AE is the Production Possibility Curve where in Point R and S indicates an actual level of output is equal to the potential level of output as resources are fully and efficiently utilized.

(Actual output= Potential output, because of fuller and efficient utilization of resources)

Actual Level of Output: It refers to that level of output that we are actually able to achieve. It may or may not be equal to the potential level of output. PPC indicates the potential level of output.

Actual output < Potential output, because of underutilization or inefficient utilization of resources.

Diagram 3 explains the production of wheat and apples and AE is the Production Possibility Curve, Point F, and G indicates the actual level of output is less than the potential level of output occurs due to underutilization or inefficient utilization of resources.

 Diagram 3 illustrates the concept of the actual and potential level of output.