The Production Possibilities Curve PPC What does a PPC graph show? The Production Possibilities Curve (PPC) shows all possible combinations of two goods.

The Production Possibilities Curve

PPC

What does a PPC graph show?

• The Production Possibilities Curve (PPC) shows all possible combinations of two goods to be produced.

PPC for the Nation

Guns

Butter

Guns

Butter

1500

All resources are being used to produce guns.

Guns

Butter

1500

2000

All resources are being used to produce butter.

Both guns and butter are produced

Guns

Butter

1100

1500

Production can be anywhere on or under the curve.

It may NOT be outside the curve– there are not enough resources to

do so.

*PPC

Guns

Butter

AAt point A (on the frontier), production is EFFICIENT.

PPC

Guns

Butter

B

At point B (inside the frontier), production is INEFFICIENT.

PPC: Trade-off

Guns

Butter

A

B

A and B represent tradeoffs. A produces more guns, B produces more butter.

The PPC can be used to show the opportunity cost of choosing

one good over the other.How much of the alternate must

be given up?

*PPC: Opportunity Cost

Guns

Butter

A

B

1400

800

1700600

The opportunity cost of A equals the decrease in butter: 1100 units.

Guns

Butter

A

B

1400

800

1700600

The opportunity cost of B equals the decrease in guns: 600 units.

The PPC can also show economic growth by moving

outward.Due to additional resources, increasing population, or new

technology.

*PPC Growth

Guns

Butter

Growth

..

1.1. SScarcitycarcity is represented by the frontier line.

2. ChoicesChoices - represented by pts A, B. or C.

3. Opportunity CostOpportunity Cost is illustrated in terms of moving from one point to another

4. EfficiencyEfficiency - using all available resources to produce.

5 PPC5 PPC Concepts Concepts

PIZZAPIZZA 00 1 2 3 4(in hundred thousands)

RobotsRobots 1010 9 7 4 0(in thousands)

in table formin table form

graphical form

Ro

bo

tsR

ob

ots

(th

ou

san

ds)

PizzasPizzas (hundred thousands)

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

PIZZAPIZZA 0 11 2 3 4(in hundred thousands)

RobotsRobots 10 99 7 4 0(in thousands)

in table form

graphical form

Ro

bo

tsR

ob

ots

(th

ou

san

ds)

PizzasPizzas (hundred thousands)

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

PIZZAPIZZA 0 1 22 3 4(in hundred thousands)

RobotsRobots 10 9 77 4 0(in thousands)

in table form

graphical form

Ro

bo

ts(t

ho

usa

nd

s)

Pizzas (hundred thousands)

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

PIZZAPIZZA 0 1 2 33 4(in hundred thousands)

RobotsRobots 10 9 7 44 0(in thousands)

in table form

graphical form

Ro

bo

ts(t

ho

usa

nd

s)

Pizzas (hundred thousands)

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

PIZZAPIZZA 0 1 2 3 44(in hundred thousands)

RobotsRobots 10 9 7 4 00(in thousands)

in table form

graphical form

Ro

bo

tsR

ob

ots

(th

ou

san

ds)

Pizzas Pizzas (hundred thousands)

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Q

QQ

Ro

bo

tsR

ob

ots

(th

ou

san

ds)

PizzasPizzas (hundred thousands)

14141313121211111010 99 88 77 66 55 44 33 22 11

1 2 3 4 5 6 7 81 2 3 4 5 6 7 8

AABB

CC

DD

EE

WW

PossiblePossiblebutbut

InefficientInefficient

Not PossibleNot Possible

PossiblePossible& & EEfficientfficient

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

How Is How Is Economic GrowthEconomic Growth shown shown on aon a Graph? Graph? An outward shift (right)An outward shift (right)

Economic GrowthEconomic Growth

A

B

C

D

a

b

Cap

ital

Go

od

s

Consumer Goods0

[Ability to produce a larger[Ability to produce a largerAmounts of goods over time]Amounts of goods over time]

Q

Q

Ro

bo

tsR

ob

ots

(th

ou

san

ds)

PizzasPizzas (hundred thousands)

1413121110 9 8 7 6 5 4 3 2 1

1 2 3 4 5 6 7 8

More of either orboth is possible

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Notes...Economic GrowthEconomic Growth

1. Increase in resources -

2. Better resource quality -2. Better resource quality -

3. Technological advances -3. Technological advances -

Let’s Review

• What does the PPC show?• What do points inside the curve represent?• What do points outside the curve represent?• What do points on the curve represent?• How can we determine the opportunity cost?• How is economic growth represented on the

PPC?• What can cause economic growth?