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Production possibility curves
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A production possibility curve (PPC) shows the maximum an economy can produce. It is a neat way to see scarcity, choice and growth.
Reading a PPC
A PPC shows the maximum combinations of two goods an economy can produce using all its resources efficiently.
On the curve: all resources fully employed.
Inside the curve: resources unemployed or used inefficiently.
Outside the curve: not achievable with current resources.
On the curve: all resources fully employed.
Inside the curve: resources unemployed or used inefficiently.
Outside the curve: not achievable with current resources.
Opportunity cost on a PPC
Moving along the curve, making more of one good means making less of the other. The amount given up is the opportunity cost.
Economic growth
Positive growth (outward shift of the PPC) is caused by more or better resources: new technology, more workers, more capital, better education.
Negative growth (inward shift) is caused by losing resources: natural disasters, war, a falling population.
Negative growth (inward shift) is caused by losing resources: natural disasters, war, a falling population.
Using the table, what is the opportunity cost of moving from B to C?
- Cars fall from 80 to 50.
- 80 − 50
Answer: 30 cars
A PPC shows maximum output. Points on it are efficient, inside are inefficient, outside are unattainable. Moving along it shows opportunity cost. Growth shifts it outward; loss of resources shifts it inward.
The interactive lesson includes the diagrams for this topic.
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