The Production Possibility Curve

What is this?

Production Possibility Curve The PPC is a curve which shows the maximum level of output for an economy. All resources are being used efficiently and there is no unemployment.

Opportunity Cost When making a decision between competing choices, the opportunity cost is the benefit lost from the next best alternative.

Lawyer taking his dog for a walk

Dominican Republic The Dominican Republic has two main industries – tourism and agriculture.

PPC in the Dominican Republic The opportunity cost of investing in agriculture is investing in tourism and vice versa. But, the opportunity cost does not remain constant.

But opportunity costs do not remain constant.

Switzerland

Switzerland Banking The opportunity cost of investing in banking is cheese making. Cheese making The opportunity cost of investing in cheese making is banking.

Bankers and Cheesemakers

You will notice…. As more and more bankers and banks are converted to cheese production, the opportunity cost increases.

Why? As we convert more and more cheesemakers to bankers, less and less suitable Land, Labour, Capital and Enterprise are now involved in banking. There is a very high opportunity cost when a very productive cheesemaker becomes an average banker.

That is why PPC curves are bow shaped.

PPC with a constant OC. If the two goods or services are very similar, then that the OC would remain constant. If the LLCE are good at making pizzas, we can reasonable assume that these same LLCE will be good at making calzones.

Production Possibility Curve Distinguish between an inward shift in a PPC and operating inside the PPC. (4) Draw a PPC showing organic carrots and I-phone apps. (2) Show how the Opportunity Cost varies at different points on the curve. (4)

Production Possibility Curve The percentage of people attending university after school increases in a given country from 25% to 45%. Assess the impact on the production possibility curve of this development. (10)

Shifts in your PPC. What type of things are likely to help boost the productive potential of your economy?

1. Immigration. Immigrants bring skills and education. Immigrants are also willing to work for pay and conditions which native born people will not do.

Swiss national football team if children of foreigners were excluded.

2. Better standards of training and education.

Where are the top 100 universities?

3. A tax system which encourages work and enterprise.

4. The discovery of new resources. Italian firm discovers huge gas field off Egyptian coast

What’s this country?

What can shift the PPC inwards?

Brain drain – Ethiopia produces a large number of qualified professionals, especially in the medical field, but is experiencing one of the worst brain drains of any country in the world. A recent study revealed some shocking numbers, with the country losing about 75% of its skilled professionals over the past ten years.

The depletion of natural resources.

War In 2012, Libya’s GDP fell by 52% in one year.