ECON1101 - Production Possibilities Curve

Production Possibilities Curve (PPC)

A graph that has the maximum amount of good x at every amount of good y produced.

They illustrate the opportunity cost and the scarcity of resources.

They are, of course, simplified ; we assume there are only 2 products, rather than the 2349090658572205 of actuality.

Factors that shift the PPC (also the main factors in economic growth)

  • Increasing productive Resources:
    • Investment in new factories/equipment
    • Population growth
  • Improvements in knowledge and technology:
    • Investment in education and ICT
    • Gains from specialization
    • Research

Opportunity Cost and the PPC

The gradient of the tangent at a point on the curve of the Production Possibilities Curve is the opportunity cost at that point. (The point you pick is based on the trading ratios).
(See figure 8.2).