2. An Innovative way of learning Commerce by Asad Sir PGT Economics & Business Studies Cont: +919045409425

3. OR Production Possibility Curve Production Possibility Frontier OR Transformation Curve

4. PURPOSE OF THE MODEL

5.  Introduce opportunity cost concept OPPORTUNITY COST Choice 1 Choice 2

6.  Show scarcity constraint How to produce What to produce For whom to produce Unlimited Wants Food, Cloth, Shelter, Security, comfort, medicine, jewelry, affection, transportation, travel, wisdom, etc Limited Resources Land, labor, capital, entrepreneur, Problem of Choice

7. Illustrate economic efficiency Inefficient utilization of resource (Plate) Efficient utilization of resource (Plate)

8. Assumptions RResources are fully and efficiently utilized,  There is no change in technology RResources are not equally efficient for the production of different goods.

9. Definition TThe Production Possibility Curve (or frontier) shows maximum possible combination of two goods that a country can produce with fuller utilization of its given resources at given level of technology.

10. Production Possibility Schedule TTabular presentation showing various combination of two goods that a country can produce with its given resources.

11. Production Possibility Curve GGraphical presentation showing various combination of two goods that a country can produce with its given resources. By: Asad Sir attainable unattainable

12. Effect of change in resources. By: Asad Sir

13. Production Possibility Curve What’s the effect of increase in resources on PPC? What’s the effect of increase in resources on PPC? By: Asad Sir

14. Rice Productive capacity of country will increase. By: Asad Sir

15. When resource increases PPC will shift rightward. PPC will shift rightward.

16. Production Possibility Curve What’s the effect of decrease in resources on PPC? What’s the effect of decrease in resources on PPC?

17. Productive capacity of country will decrease. Rice YY’ 0010050 1059045 20107035 30154020 402000 By: Asad Sir

18. When resource decreases PPC will shift leftward. PPC will shift leftward.

19. Effect of change in technology: By: Asad Sir

20. Change in technology for producing Wheat: PPC rotate rightward when technology upgrade. PPC rotate rightward when technology upgrade. PPC rotate leftward when technology become obsolete. PPC rotate leftward when technology become obsolete.

21. Change in technology for producing rice: By: Asad Sir PPC rotate upward when technology upgrade. PPC rotate upward when technology upgrade. PPC rotate downward when technology become obsolete. PPC rotate downward when technology become obsolete.

22. Resource Utilization and PPC By: Asad Sir

23. Fuller Utilization of Resources By: Asad Sir PPC indicates the potential level of output, at which resources are fully employed. If actual output lies at A, B or C. Actual Output = Potential output Fuller & efficient utilization of resource

24. Under utilization of Resources By: Asad Sir Point inside PPC rather than on it, indicates under utilization and/ or inefficient utilization of resources. If actual output lies at D, E or F. Actual Output < Potential output Under & inefficient utilization of resource

25. Two Basic Properties of PPC By: Asad Sir Unattainable Level of Output By: Asad Sir Point beyond PPC rather than on it, indicates unattainable combination. If desirable output lies at G, H or I Output is beyond productive capacity. Problem of Growth

26. Properties of a typical PPC

27. By: Asad Sir PC slopes Downward WWith fuller and efficient utilization of given resources, production of both the goods can not be increased. More of good X can be produced only with less of good Y

28. PPC is Concave to the origin SSlope of PPC is indicated by M.O.C, which shows increasing behavior, so slope of PPC tend to increase which make it concave. MM.O.C tend to rise because resources are not equally efficient for the production of both the goods. Y X Wheat Rice Increasing Slope

29. Opportunity Cost RRefers to the value (or amount) of best alternative forgone in order to make one particular investment instead of another. oor TThe cost of getting one opportunity in terms of the loss of the other opportunity.

30. Illustration: By: Asad Sir OOpportunity cost of producing 40 qt. of wheat = 10 qt. of rice. OOpportunity cost of producing 100qt. of rice = 40 qt. of wheat. 40 qt. of wheat 100 qt. of rice 10 hectare of land.

31. Marginal opportunity cost or Marginal Rate of Transformation By: Asad Sir RRefers to the change in opportunity cost (or sacrifice) when there is trade off between the production of two goods. OOR RRefers to the amount of a good sacrificed in order to produce a single additional unit of another good. Note: M.O.C indicates slope of Production Possibility Curve.

32. P.P.C with Increasing Slope Combinat ion XYM.O.C A0100-- B109010:10 C2070 D3040 E 0 By: Asad Sir

33. P.P.C with Increasing Slope Combinat ion XYM.O.C A0100-- B109010:10 C207020:10 D3040 E 0 X By: Asad Sir

34. P.P.C with Increasing Slope Combinat ion XYM.O.C A0100-- B109010:10 C207020:10 D304030:10 E400 By: Asad Sir

35. P.P.C with Increasing Slope Combinat ion XYM.O.C A0100-- B109010:10 C207020:10 D304030:10 E40040:10 By: Asad Sir

36. P.P.C with Constant Slope By: Asad Sir Combinati on XYM.O.C A0100-- B109010:10 C208010:10 D307010:10 E406010:10 Wheat Rice Constant Slope

37. Lets Recall: DDefine P.P.C? WWhat do you mean by opportunity cost? WWhat do you mean by M.O.C or M.R.T? WWhy P.P.C is convex to the origin? CCan a P.P.C be a straight line curve? WWhat will be the effect of change in technology on P.P.C? By: Asad Sir