Production possibilities curve (PPC)

DEFINIITION of PPC:
MAXIMUM combination on goods that can be produced given the available FOP and the available TOP(Technology of Production)

Purpose
-understand the concept of scarcity & constrained choice
-emphasize distinction between movements along a PPC & shifts the PPC
-show concept of opportunity cost using PPC model

3 Assumptions
-two goods will be produced
-technology unchange
-full employment

Attainable & Unattainable combination

1) Attainable & efficient combination
   -best possible combination
   -fully utilized
   -full employment level
   -firm is efficient
2)Attainable but not efficient
   -it can be produced
   -but economy not efficient
   -not fully utilized resources(unemployment exist)
3)Not attainable
   -not attainable as it is outside PPC
   -not enough resources
   -no new technology
4)Extreme combination
   -all resources only produce one goods

Change in PPC
 a) Increasing in population




 
 -Manufacturers will increase the volume of goods when there is an increase in population
 -Production of both goods will increase
 -Causes PPC to shift to right

 b) Technology progress

 -Technology progress only happened in producing ovens
 -Economy will produce more ovens compare tortillas
 -PPC shifted outwards horizontal axis