Production Possibilities Curve and Circular Flow

The Production Possibilities Curve

(PPC) a graph which shows various combinations of goods

and services that can be produced.

The PPC show us the trade offs that are possible due to limited

resources.6 Guns and0 Cases of butter

2 Guns and7 Cases of butter

0 Guns and11 Cases of butter

Movement along the PPC shows opportunity cost.

5 Guns and2 Cases of butter

2 Guns and7 Cases of butter

The points along the PPC curve assume that all resources are

being fully employed.

A

B

Any area inside the PPC underutilizes resources.

A

C B

Any area outside the PPC is impossible to sustain due to

insufficient resources.

A

C B

D

The PPC is also called the Production Possibilities Frontier

because it demonstrates the maximum products that can be

produced.

If there is a change in resources or in productivity, the entire PPC

moves.

Economist use the PPC to perform a cost-benefit analysis:

comparing the cost associated with an action to its benefits.

Wealth is generated by the circular flow of economic activity.

Mullet

In the Forum:

• What product markets do you participate in?

• What factor markets do you participate in?