Possibility Production Graphs -

Possibility Production Graphs - 

  • also know as PPGs,PPCs (curve), PPFs (frontier)
  • show alternate ways to uses resources
  • each point in the graph reflects a trade-off
  • shows the most that a society can produce if it uses every available resource to the best of its ability

  • Key Assumptions
    1.  full employment - " everyone has a job",  not possible due to laziness/old people/disabled people, 80 - 90% factory capacity/ 4 - 5% unemployment
    2. Productive Efficiency - economic level at which the economy can no longer produce additional amounts of a good without lowering the production level of another product
    3. Fixed Resources - land, labor, and capital
    4. Fixed state of technology
    5. No international trade
    6. Two goods produced
  • Point E - inside the curve
    • attainable but inefficient; under utilization
    • unemployment, underemployment, war, famine, depression/recession
  • Point B, C, D, A - on the curve
    • attainable and efficient, desired point
    • point A is only producing clothes while point B is producing only food, both doing so efficiently 
  • Point F - outside the curve
    • unattainable
    • technology, economic growth

  • Movements of the PPG -
    • inside the curve - inefficient production
    • along the curve -  efficient production
    • Shifts of the curve - unattainable currently
      • can shift inward 
      • can shift outward
      • technology and economic growth required to reach this point

  • Opportunity Cost - next best alternative that you must give up in order to get what you want
  • Law of Increasing Opportunity Cost -
    • as you produce more of one good, the opportunity cost (forgone production of another good) will increase
    • as you produce more of one good, you will produce less the another

  • Concave vs Constant PPG - 
    • Concave = bowed out
    Image result for concave possibility production graph
    • Constant = same
    Image result for constant possibility production graph
  • Productive Efficiency vs Allocative Efficiency -  
    • Productive Efficiency - products are being produced in the least costly way
    • Allocative Efficiency - the products being produced are the ones that are most desired by society
    Image result for allocative efficiency ppg

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