PRODUCTION POSSIBILITY CURVE, ITS SCHEDULE AND DIAGRAM

 

 Learning Contents:                                                            

·         Understanding  Production Possibility Curve

·         Assumptions of Production Possibility Curve

·         Production Possibility Schedule and Diagram

      Production Possibility Curve

As we have studied in previous topics that we cannot have everything that we want and must instead make choices, society as a whole cannot have everything it might want to have so; economists use a model called the production possibilities curve or frontier (PPC) to explain the resource constraints/ (limitations) society faces in deciding what to produce.

In simple words, Production is an act of producing something. Possibility means chance, likelihood, or probability of something. Production possibility means different possibilities or combination of goods which can be produced. A PPC shows all the possible combinations of two goods, or two options available at one point in time.

Definition of PPC

Production possibility curve shows the various possible or best combinations of two goods an economy can produce with the given resources on the assumption that a) resources are fully and efficiently utilized, and b) technique of production remains constant. Hence, all points in PPC are efficient and a movement between one efficient point to another means that more of one product is produced only if less of the other is produced.

The another name of the production possibility curve is Production Possibility Frontier, Production Possibility Boundary, Transformation Line and Transformation Curve.

Production possibility curve is the graphical representation of different production possibilities with the given resources and technique of production.

 Assumptions of Production Possibility Curve

Production possibility curve is drawn on the basis of the following assumptions:

1. The economy produces only two goods.

2. The resources available with the economy are fixed and constant.

3. All the available resources are fully and efficiently employed or utilized. There will be no wastage of resources.

4. There is no change in technology.

5. Resources are not equally stable for the production of both the goods but can be shifted from production of one good to another.

Production Possibility Schedule:

Production possibility schedule is a table representing the different possible combination of two goods which can be produced with the given resources and technology. Following table 1 shows the production possibilities of the production of two goods.

 Table1: Production Possibility Schedule

 

Combinations

 

Clothes

(units)

 

Shoes

(units)

Increasing

Opportunity

Cost

A

0

30

      -----

B

1

28

       2/1=2

C

2

24

       4/1=4

D

3

18

       6/1=6

E

4

10

       8/1=8

F

5

0

      10/1=10



From the above table 1 and diagram 1 that indicates combination A shows that 30 units of shoes can be produced without any production of clothes. Likewise, combination F shows 5 units of clothes can be produced without any production of shoes. Beside these extreme limits, there are many alternative possibilities of production of clothes and shoes. Combination B shows 28 units of shoes and 1 unit of clothes can be produced with the given resource and technology. Likewise, combination C shows 24 units of shoes and 2 units of clothes can be produced with the given resources and technology and similarly goes on. 

It is clear that when the production of clothes increases then the production of shoes decreases due to increasing or rising opportunity cost(sacrifice is more than gain of goods) which will make the concave shape of PPC. In the diagram 1, quantity of clothes is shown on X-axis(horizontal axis) and quantity of wheat is shown on Y-Axis(Vertical Axis). Different points show different possibilities of production with the given resources and technology. Joining all these points we get the production possibility curve.

PPC and Productive Efficiency

All points on PPC curve shows that goods and services produced at the least cost and no resource is wasted and the economy is productively efficient.



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