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PRODUCTION POSSIBILITY CURVE EXAMPLES FOR FREE
PRODUCTION POSSIBILITY CURVE EXAMPLES FULL

PRODUCTION POSSIBILITY CURVE EXAMPLES FULL

This level is sometimes called full employment. Producing on the frontier assumes the economy is using all its resources and is using them efficiently. For Econ Isle, and any economy, the frontier represents maximum production with the available resources. By connecting the points to form a line, we get an approximation of Econ Isle's different production possibilities.

Now let's plot Econ Isle's production possibilities on our graph. Given their productive resources, there are different combinations of widgets and gadgets they could produce.Ī PPF graph displays the different production options that are possible-or even impossible-for an economy. For example, Econ Isle might produce 4 gadgets and 4 widgets. Of course, the people of Econ Isle would probably prefer a mix of gadgets and widgets. On the other extreme, if it used all of its resources to produce widgets, Econ Isle could produce 6 widgets, but no gadgets. If all of Econ Isle's resources are used to produce gadgets, it can produce 12 gadgets. So, what are Econ Isle's production possibilities? In other words, capital resources are the tools the people of Econ Isle use to produce widgets and gadgets.Įcon Isle, like all economies, has a limited quantity of productive resources this means that the quantity of goods and services that Econ Isle can produce is also limited. It uses capital resources, which are goods that have been produced and are used to produce other goods and services. The people of Econ Isle work hard to produce all those widgets and gadgets. It uses labor, or human resources, which is the quantity and quality of human effort directed toward producing goods and services. Examples include water, trees, oil, and land used to produce crops. It uses natural resources, which are things that occur naturally in and on the earth that are used to produce goods and services. For example, let's imagine a single economy, the island nation of Econ Isle, that produces only two goods-widgets and gadgets.Įcon Isle is a closed economy, which means that it doesn't trade with any other countries. And in this case, it can easily be shown on a graph. Like most models, the PPF reflects a simplified version of reality. Today we're going to talk about this outer limit by using a simple economic model called the production possibilities frontier-the PPF. Whether you realize it or not, the economy has a frontier-it has an outer limit of economic production.

Have you been to a frontier lately? You know, an outer limit or a border? When you hear the word "frontier," you might think of westward expansion, outer space, or even Alaska. It has not been edited for readability, and there may be slight differences between the text and the video. Read more about our award-winning resources »īelow is the full transcript of this video presentation. This lesson received the 2017 Curriculum Silver Award from the National Association of Economic Educators.

Segment 3: The PPF Illustrates the Law of Increasing Opportunity Cost.

Segment 2: The PPF Illustrates Underemployment, Economic Expansion, and Economic Growth.

If there is a change in the quantity and quality of resources, which are specific to the production of one type of good, then the entire PPC will not shift to the right, but only the slope will change.

The PPC can also shift inwards to the left due to war or natural disasters, which reduce a country’s resources.

The quality of resources might have improved.

Increase in the capital, where more machines, factories and tools are produced.

labor can increase if there is an increase in population.

The quantity of resources available for production can increase e.g.

Shifts In The Production Possibility Curve: Therefore all along the PPC, opportunity cost is incurred. This would result in an opportunity cost of some product A that was first produced. For instance if the economy moves from point A to B less product B will be formed and less product A will be produced as compared to before. Movement along the PPC involves an opportunity cost. Point Y is unattainable as the economy doesn’t have enough resources to produce both of the products. This could mean that workers are unemployed or unmotivated, machines are idle or that factories are half used. Point X Is considered inefficient as resources are idle. The economy can exist at this point but it is being inefficient.

PRODUCTION POSSIBILITY CURVE EXAMPLES FOR FREE

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