![]() ![]() We can see that the graph of the production possibilities curve in our simple example demonstrates visually the different production opportunities that are available to me, depending on the length of time I want to spend making either pizzas or hamburgers. This outward bowed PPC should look roughly similar to the graph at the beginning of this post. Hey! Where did point F come from? For now, ignore F, but we will come back to it when we discuss efficiency. Now that we know exactly what my production possibilities are. This means I may have a set of production possibilities that looks like the following table: For example, during the day, I can make pizzas or hamburgers, and I only have so much time. It’s easiest to start by thinking about the production possibilities available to any person, like you or me. We’ll start by working out what exactly a production possibilities curve is by thinking through a simple example. ![]() In this post, we’ll build our understanding of the production possibilities curve from the ground up and work through some practice questions together so let’s get started! A Simple Example First and foremost, you’ll definitively need to master this concept if you want to ace your AP® Microeconomics or AP® Macroeconomics exams, of course! Beyond that, the PPC curve gives you an opportunity to make sure you’ve got a handle on some important economics subjects, such as opportunity costs and efficiency. The production possibilities curve is a crucial part of any AP® Economics review for a couple of reasons. So what is the production possibilities curve? The PPC curve is a way to represent the different production opportunities for a person, country, or trading partners. In that case, the production possibilities curve, sometimes called the production possibilities frontier, is a concept that you’ve got to know! Introduction to Production Possibilities Curve Decisions made by individuals, companies, and countries influence the potential of an individual, company, and country.So you’ve started studying for the AP® Microeconomics and AP® Macroeconomics exams, and you want to know what’s essential for your AP® Economics review. These brilliant people may be deterred from developing a life-saving drug. Or, assume government chooses to hire the brightest scientists to develop very sophisticated weapons. Naturally, the banking industry would thrive, but perhaps the manufacturing industry would suffer because there would be fewer manufacturing innovations. Imagine an economy where the brightest minds pursue banking careers. When people or resources are allocated to achieve an objective, another objective must suffer if we are operating on the production possibilities frontier. Understanding the implications of the production possibilities curve helps us prioritize. This can occur anywhere within the area BGD. ![]() For example, at Point G, Clean Speech could increase the production of both cell phones and soap without reducing the other. A company or country can utilize its resources more efficiently to increase production. A ny point inside the frontier is less than capacity. (Point C) The opportunity cost of increasing the number of cell phones from 1,500 to 2,700 is 2,500 vats of soap (9,500 - 7,000). Soap production would drop to a maximum of 7,000 vats per day. If the leadership chooses to increase the production of cell phones to 2,700, resources would need to be taken away from manufacturing soap. The curve tells us that it is possible to produce 9,500 vats of soap and 1,500 cell phones. If the leaders choose to produce 3,500 cell phones Clean Speech needs to allocate all of its resources to manufacture cell phones, at the expense of soap. This is represented as point A on the graph below. Clean Speech could produce 10,000 vats of soap per day if it dedicated all of its resources to producing soap. Assume a country, Clean Speech, is only able to produce vats of soap and cell phones. The curve depicts the maximum production capacity of a company or country. Detailed Explanation:Įconomists use the production possibilities frontier to illustrate several basic economic concepts, including scarcity, opportunity cost, efficiency, and the relationship between efficiency and economic growth. The production possibilities frontier is also referred to as the production possibilities curve. The production possibilities frontier is a graphical representation of combinations of amounts of two goods or services that an economy can produce by transferring resources from one good or service to another. View FREE Lessons! Definition of the Production Possibilities Frontier:
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