1. Production Possibilities Curve
The PPC illustrates what is possible in terms of production with given resources and technology
Assumptions:
Fixed endowment of economic resources
Fixed technology
Resources fully utilized

2. Digression on technology
Technology is “applied know how.”
“A sharp knife is better than a dull knife.”
Specialization is the inevitable consequence of technology.

3. A hypothetical economy

4. The PPC Feasible zone U is an inefficient point
I is an impossible point A
200 B I
175 C
130
Defense goods U F 75
125
160
Nondefense goods

5. Shifts of the PPC Defense goods Nondefense goods
PPC could shift right due to:
Improved technology
Population growth
Improved education and training
Discovery of new natural resources
Growth of the capital stock
Defense goods
Nondefense goods

6. Shifts of the PPC, part II
PPC could shift left due to:
Depletion of nonrenewable resources.
Destruction of the capital stock resulting from war or natural disaster.
Failure to replace worn-out capital
Deteriorating quality of human resources
Defense goods
Nondefense goods

7. Why is the PPC bow-shaped?
1MOC is defined as marginal opportunity cost.

8. The Law of Increasing Opportunity Cost
Resources are specialized and hence not perfectly adaptable to alternative
uses A D
200 E
175
155 F
125
Defense goods 75
100
125
160
Nondefense goods