What is the production possibility curve in economics?
The production possibility frontier (PPF) is a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. The PPF assumes that all inputs are used efficiently.
A production possibilities curve PPC is an economic model that shows the production efficiency and allocation possibilities of the economy for a given level of resources. More specifically, it describes a society's trade-off between two goods or services or two types of goods and services.
- Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. An increase in economic growth caused by more efficient use of inputs (such as labor productivity, physical capital, energy or materials) is referred to as intensive growth.
- For the economy as a whole, an improvement in technology shifts the production possibilities frontier outward. Production Possibility Frontier (PPF): An increase in technology that allows for greater output based upon the same inputs can be described as an outward shift of the PPF, as demonstrated in this figure.
- In the context of a PPF, opportunity cost is directly related to the shape of the curve (see below). If the shape of the PPF curve is a straight-line, the opportunity cost is constant as production of different goods is changing. But, opportunity cost usually will vary depending on the start and end points.
In the field of macroeconomics, the production possibility frontier (PPF) represents the point at which a country's economy is most efficiently producing its goods and services and, therefore, allocating its resources in the best way possible.
- It is because resources like labor or capital must be relocated to produce weapons. Most of the PPF curves are concave due to the inadaptability of the resources. The law of increasing opportunity cost states: as the production of one good rises, the opportunity cost of producing that good increases.
- Production possibility frontiers. Opportunity cost can be illustrated by using production possibility frontiers (PPFs) which provide a simple, yet powerful tool to illustrate the effects of making an economic choice. A PPF shows all the possible combinations of two goods, or two options available at one point in time.
- The case for economic literacy is a strong one. Nations benefit from having an economically literate population because it improves the public's ability to comprehend and evaluate critical issues. This understanding is especially important in democracies that rely on the active support and involvement of its citizens.
The four key assumptions underlying production possibilities analysis are: (1) resources are used to produce one or both of only two goods, (2) the quantities of the resources do not change, (3) technology and production techniques do not change, and (4) resources are used in a technically efficient way.
- a typical PPC usually makes a bow out (or concave) shape from the original. This indicates an Increasing Opportunity Cost, meaning that the more you produce Item A, the Opportunity Cost of Item B increases, whereas in the linear graph it was constant.
- The law of increasing opportunity cost is the concept that as you continue to increase production of one good, the opportunity cost of producing that next unit increases. This comes about as you reallocate resources to produce one good that was better suited to produce the original good.
- In economics, the law of increasing costs is a principle that states that once all factors of production (land, labor, capital) are at maximum output and efficiency, producing more will cost more than average. As production increases, the opportunity cost does as well.
Updated: 4th October 2018