AP MACRO: 1.2 Production Possibilities Curve

production possibilities curve

(or frontier) is a model that shows alternative ways that an economy can use its scarce resources

what does the ppc model do?

it graphically demonstrates scarcity, trade offs, opportunity costs, and efficiency

4 key assumptions of PPC

only 2 goods can be produced
full employment of resources
fixed resources (4 factors)
fixed technology

points on the line

points of efficiency

under the line

inefficient employment of resources

on top of the line

unattainable, overuses scarce resources

constant opportunity cost

resources are easily adaptable/suitable for producing either good
results in a straight line ppc

law of increasing opportunity cost

as you produce more of any good, the opportunity cost will increase, because resources are not adaptable to produce either good
results in a bowed out/concave ppc

3 shifters of the PPC

-change in resource quantity/quality
-change in technology
-change in trade (allows for more consumption)

more capital goods =….

more future growth