PPC

PPC

• graph that shows alternative ways an economy can use its scarce resources

• graphically demonstrates scarcity, trade-offs, opportunity costs, & efficiency

PPC 4 assumptions

1. only 2 goods can be produced

2. full employment of resources

3. fixed resources (ceteris paribus)

4. fixed technology

constant opportunity cost

resources are easily adaptable for producing either good

• result is a straight line PPC (rare)

Law of increasing opportunity cost

• as you produce more of any good, the opportunity cost will increase

• because resources are not easily adaptable to producing both goods

• results in a bowed out (concave) PPC

3 shifters of the PPC

1. change in resource quantity or quality

2. change in technology

3. change in trade