production possibility curve simple definition

along the X-axis and sugar (Y) is measured horizontally along the Y-axis. In this PPC, butter (X) is measured horizontally, i.e. Now let’s proceed to look at the graphical representation of the same example in the format of the production possibility curve. To elaborate, an economy reduces a portion of resources from the production of butter to produce more sugar. The general observation prevailing here is, as an economy produces more butter, it automatically produces less sugar.

Lastly, in the case of D – it can produce 200 kg of butter and 150 kg of sugar. On the other hand, in the case of C – it produces 150 kg of butter and 200 kg of sugar. Nonetheless, as per assumptions, the economy must produce both commodities, thus giving rise to production possibilities like B, C and D accordingly.Īs per the schedule, in the case of B - an economy can produce 100 kg of butter and 230 kg of sugar. Here, both P and P1 are the production possibilities of an economy that can produce either 250 kg of butter (X) or 250 kg of sugar (Y) as shown against possibilities P and P1. Notably, the production possibility schedule is based on the Production possibility curve assumptions mentioned above. That being said, let’s check out a hypothetical production possibility schedule and analyze it in the graphical format. The supply of resources is fixed but can be reallocated to produce both goods but within feasible limits.Īll resources and available technology in the economy is optimally allocated and used. The same combination of resources can be used for producing either one or both of the goods and can be freely shifted between them. Only two specific goods, namely, ‘X’ (consumer goods) and ‘Y’ (capital goods), are widely produced in an economy in different proportions. Let’s glance through the assumptions on which the production productivity curve rests – What are the Assumptions of the Production Possibility Curve? However, before finding that out, one needs to become familiar with assumptions of the PPC curve.Ĭheck Your Progress: Before moving onto the next level, try to define the production possibility curve in your own words and provide suitable examples. To further understand this concept, one needs to take a look at a production possibilities curve example. The curve obtained tends to represent the number of products that a manufacturer can create with the limited resources and technology available at hand. In such a graphic tool, the maximum manufacturing capacity of a particular commodity is arranged on the X-axis, and that of other commodities is arranged on the Y-axis. Additionally, it helps producers keep track of the rate of transformation of a specific product into another in a situation wherein the economy shifts from one position to another. Further, the analytical tool explains and addresses the problem of choice that allows producers to solve them effectively. With that piece of information, are you all set to delve into detail about the production possibility curve in economics?Īs per the production possibilities curve definition, it is a graphical representation of all possible combinations of any two specific goods which can be produced in an economy. Notably, the production possibility curve is one such medium that offers a fair idea about the feasible production goals and then proceeds to offer an insight into the favourable combination of resources. However, the key to achieving it depends on producers’ ability to use an ideal combination of resources and figure out ways to lower wastage on all production aspects.ĭuring their planning stage, several producers and manufacturers rely on well-crafted diagrams and charts to analyze and in turn, solve the problem of choice and resource allocation. Because resources, including raw materials, are scarce and limited in nature, producers are often faced with the question of, “What to produce?” and “How much to produce?” Typically, such a problem is solved by allocating available resources in a way that helps to meet consumers’ demand effectively and in turn, generate substantial profits.

Production possibility curve simple definition