Production Possibility Curves

Production Possibility Curves
IGCSE
A production possibility curve is a graphical representation of
the maximum combination of goods and services which can
be produced in an economy using all the available resources
 The curve simplifies this by showing the production of just
two types of products
 The diagram to the right shows an
economy using its resources to
produce either agricultural products
or tourism products, or both
 The curve can be used to illustrate
c______ and r________ a________
Task
 If a firm is producing 2
computers, how many jackets
can it produce?
 In order to produce 4 more
computers, how many jackets
must be given up?
 What is the opportunity cost of
producing one jacket?
 What is the opportunity cost of
producing one computer?
 Example
 A piece of land can produce either sugar or bananas
 If it uses the land to grow bananas it can grow 100,000 kg
 If it uses the land to grow sugar it can produce 50,000kg
 Or it could combine bananas and sugar
 However, for every kg of bananas grown, the economy must
give up how much sugar?
 Half a kg
 Ifeach area of land were identical the PPC would be a
straight line
 Land is not identical – some land is better suited for bananas
and other for sugar
 Therefore, a PPC is a curve rather than a straight line
 A PPC can be used to illustrate choices made in an economy
 As resources are scarce, a decision to devote more
resources to producing one product means fewer resources
are available to produce other goods
 On a production possibility curve,
points A, B & C show combinations
of wine and cotton that can be
produced
 What does point X show?

 It shows where resources are not
being fully used
 Why might this be?
 Is it possible to produce at Y?
 No, not with your existing level of
resources
 Movement along a PPC
 To convert land to hotels (X)
involves giving up agricultural (Y)
output
 The distance shown by Ya – Yb on
the vertical axis shows the value of
agriculture sacrificed to increase
hotels from Xa to Xb
 Movement along a curve from A to B
illustrates the impact of substituting
agriculture for hotels
 A PPC shows the combined maximum possible output of two
products
 It can also show the production of an economy with existing
resources and technology
 o_________ c_____ can be measured along the curve in
terms of the s________ in the quantity of one good when you
c_______ to allocate more r_________ to another good
 Shifts in the PPC
 A curve will shift to the right as a
result of an economy increasing its
p________ c_________
 What can cause this?
 An increase in any of the factors of
production
 This leads to economic growth
 Over time, economies become
more efficient through investment
Task
 Choose two variables and plot your own PPC diagram

 Your diagram must have a scale on both axis
 Plot 3 different point on the curve and identify the output
 Plot a point within the curve and identify the output
 Show movement on the curve and identify the opportunity
cost of one variable against another
 Draw a shift in the curve to indicate an increase in resources
 It
is possible for a PPC to shift to the left
 How could this happen?
 An economy can become more inefficient as the result of a
hurricane or any extreme event
 Question
 Why is it better for economic output to be on the production
possibility curve rather than to lie below it?
 Resources are being used efficiently
 For a country to produce on its PPC, what two conditions
must be met?
 Full use of all factors of production and efficient use of all
resources
 What would happen to the PPC diagram if new resources
were discovered?
 There would be a shift to the right of the PPC curve
 What would happen to the PPC diagram if some resources
became unemployed?
 The country would be producing within its PPC curve
 What would happen if there was a natural disaster (e.g.
earthquake?)
 The PPC curve would shift to the left
Question
 Discuss why an outwards shift of the PPC is not always good

for an economy

Production Possibility Curves

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Production Possibility Curves

 What does point X show?

 Choose two variables and plot your own PPC diagram

 Discuss why an outwards shift of the PPC is not always good

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