show alternative ways to use an economy's resources. Upgrade to remove . A production possibilities curve shows the relationship between the production of. In this video Sal explains how the production possibilities curve model can be used Now one way to understand this production possibilities curve is it shows . Curve that shows alternative ways to use an economy's resources. A production possibilities curve shows the relationship between the production of which.
Well, you can actually have investment or you could have more land or more labor. So let's think about that scenario. So let me draw the two axes. So that's my fork axis, that's the quantity of forks that Utenslandia will produce in the year. This will be the spoon axis, right over there. And let's draw our original production possibilities curve. So I'll try to make it look pretty similar to what we had before.
So that's our original production possibilities curve. Another way of thinking about it is it's showing the trade off between producing forks and spoons.
You can actually think about what is the opportunity cost of producing an incremental spoon in terms of forks.
A production possibilities curve shows the relationship between the production of which two items
How many forks do you have to trade off because remember, there's scarcity at play. You don't have an infinite amount of metal to produce things with, an infinite amount of labor, an infinite amount of factories.
But let's say Utenslandia, they are able to get some more land on which to build factories, maybe they build some more factories so capital goes up, maybe some people migrate to Utenslandia. So in that situation, you would have growth and your production possibilities curve would actually shift outward.
So here, we are showing, let me make it a little bit, we are showing a situation right over here, this is still a production possibilities curve but we're showing what happens when you have growth. And once again, what are the drivers of growth?
Well this could be the amount of land that you have goes up. The amount of capital that you have goes up.
Production Possibilities Curve as a model of a country's economy
Capital could be things like factories, it could be machinery, you could have people, more people are able to help produce the spoons or forks. You could just have better technology for producing spoons and forks.
Sometimes people will even talk about entrepreneurial spirit, that people are able to figure out better ways of combining these resources so that you could produce more spoons or forks. But let's imagine now the other scenario.
Opportunity cost & the production possibilities curve (PPC) (article) | Khan Academy
Let's imagine a scenario where Utenslandia gets into a war with Platelandia. And Platelandia sends their bombers in and starts destroying some of the factories of Utenslandia and so what will happen in that situation?
So before the war, this is that production possibilities curve for Utenslandia. But now, because of the war, maybe Platelandia is able to take some land from Utenslandia, maybe it's able to destroy some of the factories and other forms of capital, maybe people flee Utenslandia so there's less labor. This curve helps in determining what quantity of a non-essential good or a service an economy can afford to produce without jeopardizing the required production of an essential good or service.
Also called transformation curve. It is a graph that represents various maximum combinations of output a nation can produce with limited economic resources in a fixed period of time.
- Opportunity cost and the Production Possibilities Curve
What is a production possibility frontier curve? Basically the PPC represents the hypothetical amount of two different goods that could be obtained by using resources from the production of one for the production of the othe…r. It also describes society's choice between two different goods.
When a point is on the curve it means all the resources for those goods is at full employment, anything under the curve is at under-employment, and anything beyond the curve indicates potential growth. Why is product possibility curve linear?
The production possibility curve is not always linear, in fact, it is usually concave down bowed-in. The shape of the curve depends on the substutability of the goods descri…bed by the curve in the question. It shows a range of two product quantities that may be created from limited resources. By Lecho Share to: