Micro Topic 1.3- Production Possibilities Curve

Production Possibilities Curve (PPC)

Using Economic Models…

Step 1: Explain concept in words

Step 2: Use numbers as examples

Step 3: Generate graphs from numbers

Step 4: Make generalizations using graph

What is the Production Possibilities Curve?

• A production possibilities curve (or frontier) is a model that shows alternative ways that an economy can use its scarce resources.

• This model graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency.

4 Key Assumptions

• Only two goods can be produced 

• Full employment of resources

• Fixed Resources (Ceteris Paribus)

• Fixed Technology

Shifting the Production Possibilities Curve

Production Possibilities

4 Key Assumptions Revisited

• Only two goods can be produced 

• Full employment of resources

• Fixed Resources (4 Factors)

• Fixed Technology

  
  

What if there is a change?

3 Shifters of the PPC

1. Change in resource quantity or quality  

2. Change in Technology

3. Change in Trade (allows more consumption)

What happens if there is an increase in population?

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