PRODUCTION POSSIBILITY CURVE (PPC). The Production Possibility Curve , also known as the Production possibility Boundary (PPB),
refers to a graph curve showing the possible combinations of different commodities that can be produced en economy, given the prevailing level of technology, if all the available productive are efficiently utilized.
what is production possibility curve
In other words, a graphical illustration of all the possible combinations of two or more types of ties which a society can produce, using quantity of resources.
- Define the production possibility curve (PPC), and show how to graph the curve from possible data.
- Explain the relationship between the curve and concept of opportunity costs.
Define the concepts of total, average and marginal productivity, determine the values when given output data; use such data to derive the curves
Explain the relationship between total, marginal and average productivity.
The idea behind the production possibility
is that in order to produce a particular commodity, the production of another commodity has to be sacrificed.
The PPC has a downward slope from left to right, indicating that there is an opportunity cost of producing more of one type of commodity.
The cost is, however, measured in terms of quantity forgone of the other types of commodities.
For example, let us consider the production possibility curve for the production of cattle and motor vehicles in South Africa
Production possibility table for the production of cattle and motor vehicles by South Africa
|Possible Combination||Heads of cattle||No. of motor vehicles|
|A B C D E F||200 170 100 80 40 0||0 30 70 130 150 180|
shows the alternative open to South Africa to substitute the production of cattle for vehicle on a monthly basis, assuming a given state of technology and a given total or quantity of resources.
There exist extreme cases of A and F, where respectively, no vehicles is produced at all in other to produce a maximum of 200 cattle, and no cattle were produced at all in order to produce a maximum of 180 motor vehicles.
If more motor vehicles are to be produced, more resources for the production of cattle have to be given up or forgone. For example, in order to produce 130 motor vehicles rather that 70, that is, more from C to D
(100 – 80) = 20 heads of cattle have to be given up or transferred.
The PPC illustrated in Table 22.1 can be demonstrated with the aid of a graph as shown
Interpretation or points to note from the graph
- Points A to F on the graph indicate
- efficient use of resources.
- At points O and P (outside the curve), production is not feasible. Production at these points is not feasible due to the limited resources and technology
- At points K and L (inside the curve), production is feasible, it represents where resources are not efficiently used.
- The downward slope of the PPC indicates that there is an opportunity cost of producing more of one type of commodity and less of the other due to limited resources and technical know how.
RELATIONSHIP BETWEEN PRODUCTION POSSIBILITY CURVE AND OPPORTUNITY COST
Opportunity cost by definition is an expression of cost in terms of forgone alternatives. It is the satisfaction of one’s want at the expense of another want.
It refers to the wants that are unsatisfied in order to satisfy another pressing need. The production possibility curve (PPC) is directly connected with opportunity cost. The PPC involves sacrifice in production of one commodity in order to another one can be produced.
Once more resources are allocated to the production a commodity, less resources would be allocation to the production of others (because res are scarce).
The downward slope of the illustrates that there is an opportunity involved in the production of more commodity. This cost is measured in I quantity of another commodity for sacrificed.
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