Production Possibility Curves

Production possibility curves (PPC)

Production possibility curves (PPC)

• The production possibility curve (PPC) is an economic model that considers the maximum possible production (output) that a country can generate if it uses all of its factors of production to produce only two goods/services

• Any two goods/services can be used to demonstrate this model

• Many PPC diagrams show capital goods and consumer goods on the axes

  • Capital goods are assets that help a firm or nation produce output (manufacturing)

    • For example, a robotic arm in a car manufacturing company is a capital good

  • Consumer goods are end products and have no future productive use

    • For example, a watch or a pair of trousers

Diagram explanation

• The use of PPC to depict the maximum productive potential of an economy

  • The curve demonstrates the possible combinations of the maximum output this economy can produce using all of its resources (factors of production)

  • At A, its resources are used to produce only consumer goods (300)

  • At B, its resources are used to produce only capital goods (200)

  • Points C and D both represent full (efficient) use of an economy's resources, as these points fall on the curve

    • At C, 150 capital goods and 120 consumer goods are produced

• The use of PPC to depict efficiency, inefficiency, attainable and unattainable production

  • Producing at any point on the curve represents productive efficiency

  • Any point inside the curve represents inefficiency (point E)

  • Using the current level of resources available, attainable production is any point on or inside the curve and any point outside the curve is unattainable (point F)