Production Possibility Curve (PPC): A graphical representation showing the maximum output combinations of two types of products that can be produced with existing resources.
Also known as:
Production Possibility Frontier (PPF)
Production Possibility Boundary (PPB)
Understanding the Curve
Outside the Curve (e.g., Point X):
Indicates insufficient resources to produce both consumer goods and capital goods.
Inside the Curve (e.g., Point A):
Indicates inefficient use of resources.
On the Curve (e.g., Points B, D, C):
Indicates efficient use of resources.
Shifts in the Production Possibility Curve
Outward Shifts
Causes:
Increase in quality and quantity of resources (factors of production).
Examples: Better education, advancements in technology.
Effects:
Increase in a country's productive potential.
Ability to produce more, leading to economic growth.
Inward Shifts
Causes:
Decrease in quality and quantity of resources (factors of production).
Examples: Natural disasters.
Effects:
Decrease in a country's productive potential.
Reduced output, potentially leading to recession as GDP falls.