Production Possibilities curve (PPC)

PPC

frontier. a model that shows alternative ways that an economy can use its scarse resources. demonstrates scarcity,trade offs, opportunity costs, and efficiency

4 key assumptions

1. only 2 goods can be produced

2. full employment of resources

3. fixed resources (ceteris paribus)

4. fixed technology

point below line

resources are being used inefficiently

point on line

resources are used efficiently

point above line

impossible to reach with available resources

constant opportunity cost

resources are easily adaptable for producing either goods. result is a straight line PPC (not common)

law of increasing opportunity cost

as you produce more of any good, the opportunity cost (forgone production of another good) will increase because resourses are not easily adaptableto produce both goods. result is a bowed out (concave) PPC.

productive efficiency

products are being produced in the least costly way. point on PPC

allocative efficiency

products being producedare the ones most desired by society. optimal point on PPC that depends on the desires of society

3 shifters of PPC

changein resource quality or quantity

change in technology

change in trade