Scribd
Upload
79 views26 pages

1.4 L6 Production Possibility Curves

The document discusses production possibility curves (PPC) and how they can be used to represent the maximum output combinations of two goods or services an individual, firm, or economy can produce with limited resources. PPCs show the opportunity cost of choosing one good over another, and can help decision makers visualize tradeoffs as they allocate resources between different production options. PPC analysis is useful for understanding an economy's productive capacity and the economic choices involved in determining what and how much to produce.

Uploaded by

ru hui
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
79 views26 pages

1.4 L6 Production Possibility Curves

The document discusses production possibility curves (PPC) and how they can be used to represent the maximum output combinations of two goods or services an individual, firm, or economy can produce with limited resources. PPCs show the opportunity cost of choosing one good over another, and can help decision makers visualize tradeoffs as they allocate resources between different production options. PPC analysis is useful for understanding an economy's productive capacity and the economic choices involved in determining what and how much to produce.

Uploaded by

ru hui
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 26

1.

The Basic Economic Problem


Production Possibility Curves (PPC)
Lesson Objectives
● To be able to define Production Possibility Curves (PPC) by
drawing and interpreting appropriate diagrams

● To be able to identify the significance of production points


under, on and beyond a PPC

● To be able to explain PPC and Opportunity cost


Activity 1

Think Pair Share


1) If a farmer had six fields and could grow either
wheat or rice in the fields, which should the
farmer grow?

2) What could affect which crop the farmer


chooses to grow?
Activity 2

Discuss these questions in pairs:


A car company can manufacture two models of
car in its factory.
Should it manufacture only one model or should
it manufacture some of both models?
What are your reasons for this choice?
I could spend my time marking exams or I could
spend my time planning lessons..

A B C D E
Planning 0 1 2 3 4
lessons
Marking 30 29 25 15 0
exams
The Production Possibility Curve (PPC)
diagram shows the different
combinations of two goods that can be
produced using full employment of
resources
The PPC represents the maximum amount
of goods and services which can be
produced in an economy, if all resources
are used effectively.

It represents the productive capacity


(maximum output) of an economy.
A PPC shows the combined maximum
possible output of two products or groups
of products a firm, or whole economy, can
produce efficiently with its existing
resources and technology.
Marking Exams
A B
C

Impossible as I
D don’t have the
resources

E
Shows I am planning 2
lessons and marking 10
A B C D E Planning Lessons
exams.
Planning 0 1 2 3 4 This is inefficient because I
lessons
am not using all of my
Marking 30 29 25 15 0 resources to the fullest
exams
So..
● Any points inside the curve is inefficient - I
could produce more but I don’t
● The line shows efficiency - any point along
the line, then I am using all of my resources
to the fullest

● A point outside the curve is impossible as I


don’t have the resources
Producing a PPC is a useful way to show
opportunity cost in production.

As resources are scarce, if a decision is made to


use more resources to produce one product, it
means that there are less resources available to
produce other goods.
Recap: Opportunity Cost

The cost of the next best option


(opportunity) forgone when making an
economic decision (or choice)
Activity 3
Calculate the opportunity cost using the following data table:

A B C D E
Planning lessons 0 1 2 3 4
Marking exams 30 29 25 15 0
● A to D - choice to plan more lessons
● B to C - choice to plan more lessons
● E to D - choice to mark less exams
● C to A - choice to mark less exams
Answers
A B C D E
Planning lessons 0 1 2 3 4
Marking exams 30 29 25 15 0

● A to D - 15 exams
● B to C - 4 exams
● E to D - 1 lesson
● C to A - 2 lessons
Definition: Production Possibility Curve (PPC)

Shows the maximum possible output for two


goods or services with a given amount of
resources
Another example: A farmer could use his fields to
grow wheat and rice:

Output (units) of 100 75 50 25 0


wheat
Output (units) of 0 50 100 150 200
rice

Draw a PPC using this data


Constant Opportunity Cost

Farmer could choose to


Units of rice

use half field for wheat


and half for rice. (50 units
A wheat and 100 units rice)

Units of wheat
The opportunity cost for the farmer was one unit of wheat for
two units of rice.

The opportunity cost remains the same all the way along the
PPC.

Why do you think that is the case?

So do you think that all fields are suitable for growing both
crops?

No! Some fields will be more suitable for growing wheat and
some suitable for rice (The soil is more suited for one over the
other)
Activity 4
Draw a new PPC from the following information:

Output (units) 100 90 75 55 30 0


of wheat
Output (units) 0 60 90 120 140 150
of rice
Answer

At this end of the curve all


Units of rice

resources are being used to grow


rice, including some land that
would be better suited to growing
wheat

At this end of the curve all


resources are being used to grow
wheat, including some land that
would be better suited to growing
rice

Units of wheat
Activity 5
What is the opportunity cost of wheat when
one field is changed over to growing rice?
Output (units) of 100 90 75 55 30 0
wheat
Output (units) of 0 60 90 120 140 150
rice
Opportunity cost
of increased rice
output
Answers

Output (units) of 100 90 75 55 30 0


wheat
Output (units) of 0 60 90 120 140 150
rice
Opportunity cost 10 15 20 25 30
of increased rice units units units units units
output of of of of of
wheat wheat wheat wheat wheat
PPC in an Economy
Can be used to show the choices in an economy about what
to produce

Could use all resources to produce goods for consumers to


buy e.g televisions

Or

Entirely goods for producers to buy (e.g. machinery)


If the country moves
from producing 120
consumer goods to
140, it will reduce
production of capital
goods from 80 to 70

For one capital good it


gives up, it gains two
consumer goods at
this point on the curve.
Activity 6

Write down the question then answer:


1) Would it be a wise decision for an economy to
produce only consumer goods and no
capital goods?
2) How do you think the PPC diagram could help
individuals, firms or governments to make
decisions?
Answers
1) It would not be wise - an economy would not be able to
grow if insufficient amount of resources are allocated to
capital goods. There would be less consumer goods in
future is there was no investment in capital goods which
are needed to make consumer goods

2) Individuals, firms and governments can all use the PPC to


weigh up choices and their opportunity costs

E.g. Government could decide to spend money on healthcare


if it seems better than spending money on roads.

You might also like