Physics 9065 code
Monday 25 August 2014
Production Possibility Curve
PRODUCTION
POSSIBILITY CURVE
This is a curve representing all
possible combinations of two goods that can be produced by an economy where all
of its resources are fully and efficiently employed.
Production
possibility curve
|
Point X:
The economy can exist at this point
but it is being inefficient. Point X Is considered inefficient as resources are
idle. This could mean that workers are unemployed or unmotivated, machines are
idle or that factories are half used.
Point Y:
Point Y is unattainable as the
economy doesn’t have enough resources to produce both of the products.
MOVEMENT ALONG THE CURVE:
Movement along the PPC involves an
opportunity cost. For instance if the economy moves from point A to B less
product B will be formed and less product A will be produced as compared to
before. This would result in an opportunity cost of some product A that was
first produced. Therefore all along the PPC, opportunity cost is incurred.
SHIFT IN THE PRODUCTION POSIBILITY CURVE
Product A Product B
Rightward shift
Product A
Product B
Leftward shift
Reasons for rightward shift:
·
The
quantity of resources available for production can increase e.g. labor can
increase if there is an increase in population
·
Increase
in the capital, where more machines, factories and tools are produced
·
The
quality of resources might have improved.
Reasons for leftward shift:
·
Less
resources available
·
The
PPC can also shift inwards to the left due to war or natural disasters, which
reduce a country’s resources.
CHANGE IN THE SLOPE OF THE PPC
Product A
Product
B
If there is
a change in the quantity and quality of resources, which are specific to the
production of one type of good, then the entire PPC will not shift to the
right, but only the slope will change
E.g.
technological improvement in the production of product B has caused the maximum
number of product B to increase, but the maximum number of product A doesn’t
change.
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