Economics is the social science that analyzes the production, distribution, and consumption of goods and services.

Tuesday, 3 January 2012

Production possibilities curve (PPC)

Production possibilities curve (PPC)
Production possibilities curve (PPC) show the maximum combination on goods that can be produced given the available factors of production and the available technology of production.

Purpose to using the production possibilities curve is:

·         To understand the concept of scarcity and constrained choice.
·         To emphasize the distinction between movements along a PPC and shifts the PPC.
·         To show the concept of opportunity cost using the PPC model.


    3 assumptions to build the PPC

                                                   i.                  There are only two goods will be produce (food and cloth).
                                                 ii.                  The production of technology is available and not changes.
                                               iii.                  Limited factor of production.
                                               iv.              Economy has achieved level of full employment.
Attainable and unattainable point     
     i.                Attainable and efficient combination 
With reference to PPC graph, the best possible combinations are point a, b, c, d, and e (attainable). Where resources are fully utilized and the country is said to be at full employment level. The firm is also to be efficient (no waste in the use of resources).
                       ii.                Attainable but not efficient combination 
Combination f (inside PPC) is attainable because it can be produced, but the economy is not efficient and the resources are not fully utilized (unemployment exist).
  iii.                Not attainable combination  
Combination g is not attainable because it situated outside the PPC. It cannot be producing because not enough resources and no new technology.  
 iv.                Extreme combination 
Extreme combination is combination can be produced and it efficient but all resources will use for produce only one goods.