Production Possibility Curve (PPC)

PPC

• we assume all other things are equal when we do ppc

• the graph is a curve that goes downwards from left to right

• the curve represents the maximum possible output combinations of two goods that can be produced given limited resources

Opportunity Cost

• represents the trade-off between two goods or services when choosing to produce more of one at the expense of the other

  • “what am i going to have to give up”

• marginal cost involves the additional cost incurred from producing one more unit of a good or service

PPCs for Increasing, Decreasing, and Constant Opportunity Cost

• if you’re giving up more and more of something to produce another, it is an increasing opportunity cost

  • this is represented by a concave PPC that curves outward

• if you’re giving up less and less of one good in order to produce more of another, it indicates a decreasing opportunity cost

  • can be portrayed by a PPC that is convex/inverted concave

• for every [x] you give up, you’re giving up a constant amount of [y] → constant opportunity cost

  • linear line

PPC as a Model of a Country’s Economy

• if it’s outside the curve, the possibility is not attainable

• if it’s inside the curve, there productivity is inefficient because you’re not utilizing every resource you could

• the points on the curve indicate efficient use of resource

• when resources increase → ppc shifts to the right

• when resources decrease →ppc shifts to the left