If we assume that innumerable production possibilities exist between any two-production possibilities schedule, we get the production possibility curve P1 to p6. This shows the locus of points of the different possibilities of production of two commodities, which a firm or an economy can produce, with the help of given resources and the techniques of production. Points outside the production possibility (e.g. point p) are unattainable as society’s resources of production are not sufficient to give output beyond the curve. Points lying inside the curve like p1 are attainable by the society but at these points resources production are not fully employed. For example, if society is producing at point p7 then it can increased the production of food keeping the no of cars constant or it can increase the production of cars keeping the food grain output constant or it can increased the output of both the goods simultaneously.
Shift of production possibility curve
The PPC shifts upward or downward due to:
1. The change in the supply of productive resources and
2. The change in the state of technology.The production capacity of an economy grows overtime through increase in resource supplies and improvement of technology. This enables PPC to shift upward from AE to A1E1 as shown in figure below. This outward shift of the PPC is the basic feature of economic growth.
Uses of production possibility curve:
Through the device of PPC can be used
for many analytical purposes. We shall discuss below some of its popular uses.
(i) The problem of choice:
The problem of choice arise because of
the given limited resources and unlimited wants, may relate to the allocation of
resources between the goods for the higher income group and the lower income group and the goods for the defense and the civilians. Since PPC is the locus of the combination of the goods the problem of
choice will not arises when we choose any
point on PPC.
(ii) The Notion of Scarcity:
We can explain the notion of scarcity
with the help of PPC. We know that every
society possesses only a specific amount of
resources, which can produce only limited
amount of output even with the help of best technology, Economic scarcity of best fact of life. The production possibility curve reflects the constraints imposed by the element of economic scarcity.
(iii) Solution of central problems:
The central problems of an economy can
be explained with the help of PPC. The solution of problem of what to produce involves the decision regarding the choice of location on the production possibility carves. A production combination represented by any point inside the PPC indicates that the economy is using inefficient methods of production and inefficient combination of resources.
This chapter has given a broad overview
of economics. Moreover the present certain common characteristics of economics definitions of Wealth,Welfare, Scarcity & Growth free essential questions an economy must solve; what to produce, how to produce and for whom to produce and also looked at division of economics, distinguishing between Micro and Macroeconomics. It has introduced some basic concepts frequently appearing throughout the lessons.
It is perhaps both importance, the study of economics is an intellectually fascinating adventure highly relevant and it affects people’s life. Every now and then after learning lesson, think of economic activities in and around you. Perhaps in this way learning of economics makes to think like an economist.