Production Possibility Curve

Submitted By kkkkkkkkkggggggg
Words: 3678
Pages: 15
Open Document
www.studyguide.pk

1

SHAPE OF PRODUCTION POSSIBILITY CURVE:
Shape 1: Concave
Good Y
A

P

Q

0

Good X
B

The slope of the production possibility curve is the Marginal Rate of Transformation (MRT) which indicates the rate at which one good is being transformed into another, not physically, but by transferring resources from one good to another good. As we move along the production possibility curve through points P and Q downwards, slope or steepness of each tangent through these points increases. Thus, the production possibility curve takes a concave shape, indicating increasing opportunity cost, that is, the economy is willing to give up more Y for an additional unit of X. There is increasing opportunity cost because of diminishing returns.
Note: slope of PPC = MRTYX = change in Y = change in X

opportunity cost of producing an additional unit of X in terms of Y.

Shape 2: Convex
Good Y
A

P

Q
0

Good X

B
As we move downwards from P to Q, the steepness of each gradient falls, i.e, the gradient becomes flatter. In other words, the slope of the production possibility curve diminishes as we move downwards. This means that the MRTYX keeps falling, and thus, the opportunity cost is decreasing
(increasing returns). The economy is now willing to give up less units of Y for the same additional unit of X.

www.studyguide.pk

2

Shape 3: Linear
Good Y
A
P

Q

0

B

Good X

Here the slope of the production possibility curve remains constant. The MRTYX is constant or unchanged as we moved downwards the curve from left to right. Thus, the production possibility curve becomes linear or straight line. The opportunity cost also remains constant (constant returns). This means that the economy is willing to give up the same amount of Y for the same additional unit of X.

SHIFT OF THE PRODUCTION POSSIBILITY CURVE:
Good Y
A1
A

c a b

0

Good X
B

B1

If the economy’s capacity to produce goods is increasing, the production possibility curve will be moving outwards over time. This indicates that economic growth has taken place. Economic growth shifts the boundary outward and makes it possible to produce more of all goods. Before growth points a and b were on the production possibility curve and point c was unattainable. After growth, point c is attainable. FACTORS RESPONSIBLE FOR THE SHIFT:
1. Improvement in the state of technology
2. Increase in the labour force and labour productivity

www.studyguide.pk

3

3. Increase in capital stock (investment)
4. Discovery of new resources.

PRODUCTION POSSIBILITY CURVE AND EXCHANGE (through international trade): Good Y
A
20

P (10X, 20Y)

16

Q (20X, 16Y)

0

Good X
10

20 B

In an open economy, suppose a country produces at point P along the production possibility curve AB. In other words, with the available amount of resources, it produces 10 units of X and 20 units of Y. Combination Q cannot be produced due to scarcity of resources unless there is economic growth.
However, even without economic growth, consumption at point Q could be attained only through exchange, that is, only if the country engages itself in international trade. To attain combination Q, the country has to export 4Y and import 10X.

ECONOMIC SYSTEMS:
The central problem of every economic society is to allocate resources in deciding what, how, and for whom to produce. These three questions are dealt with in different ways in each and every

www.studyguide.pk

4

economy. They are dealt with depending on the economic and political frameworks of that country.
Broadly speaking, the economic systems are classified into 3 categories namely:
1. The market economy or laissez-faire system or capitalist economy.
2. The command or planned economy
3. The mixed economy.

MARKET ECONOMY:
In a market economy resource allocation is carried out by private individuals only. All factors of production
Show More

Related Documents: Production Possibility Curve

Piano Levels

Grades and Levels of Piano There are many different levels of piano. Some levels start at 1A and end at 3B. Some levels start at 1, and all the way to 9. What I have here is mostly from http://www.sheetmusicplus.com. I give an example for a book in each level. Here is the level for the levels, Level Seven Octaves are introduced at this level, and melodies are in both hands.There is also four-note chords in both hands. An example for this level would be"Haydn: Six Easy Sonatas". Level Nine Now, scales…

Words 421 - Pages 2

Levels Of Analysis

Handout 1-B Levels of Analysis ______________________________________________________________________________ Description of Observed Behavior: First, we must determine the age of the males. This will determine how they are grouped and to what level of influence opinions and amount of outward competition of their peers will have on the response. Since the males are “hanging out” in a group, they will exhibit behaviors in order to try and obtain the attention of the girl over others in the group…

Words 927 - Pages 4

The Levels Of Organization Is Below

Chapter 1 1. The levels of organization in order from smallest to largest are: chemical level, cellular level, tissue level, organ level, organ system level, and organismal level. All the levels are living, except the chemical level. 2. Name the basic functions of these systems: A: Lymphatic 1. Returns fluids to blood vessels 2. Cleanses the blood 3. Involved in immunity B: Endocrine 1. Secretes regulatory hormones -Growth -Reproduction -Metabolism C:…

Words 566 - Pages 3

Ideal Protection Level

armored vehicle is determining your ideal protection level. The protection level you need depends on a few factors. First is how you will be using the vehicle and the perceived threat level. Will the vehicle be used for military purposes or for day-to-day activities? In addition, factors like cost, vehicle type, and number of passengers can also affect the level of protection needed. A ballistic protection level tells you how much security a certain level of armor can provide. A commonly followed benchmark—and…

Words 402 - Pages 2

Third Level Essay

lesson: THE THIRD LEVEL written by: JACK FINNEY Page A Class: XII GIST OF THE LESSON Theme: Charley a thirty one year old having worked late at night enters Grand Central Station from Vanderbilt avenue, with the aim of boarding a train home. As the station is large consisting of various corridors and two levels catering for different trains, he loses his way. He finds himself in what he thinks is the third level of the station…

Words 7567 - Pages 31

levels of governement Essay

1.1 Levels of Government and their responsibilities Local authorities Local authorities are a huge service provider to benefit the local community. The council’s main roles are to either provide services directly to the public, or arrange others to do so, for example collecting the rubbish bins. Most of these services affects the daily lives of the local people, the duties of the local authorities vary across the UK however the main roles/responsibilities are; environmental health, roads and…

Words 441 - Pages 2

A Level Chemistry Essay

A Level Chemistry Entry Requirements: BB in Core and Additional Science or B in Chemistry and C in Maths. In addition, a D Grade in AS Chemistry is needed to progress to the A Level. Wainwright, Miss J Rigby Exam Board: AQA Teachers: Mrs V Bates, Mr A Conheeney, Mr N Barnet, Mr P Carter, Mrs J Timetable Organisation: 5 periods of 1 hour length each week for two years, taught by 2 teachers. Students in Year 13 also have one hour of directed study time each week. Main Syllabus Area A Level Chemistry…

Words 422 - Pages 2

It level 3 Essay

enhance a student's learning. Technology offers many forms of media that combine text, audio, visual, graphic and self-motivated elements. These multiple forms of media present knowledge in several different ways, such as the, opportunity for deeper levels of understanding. Mobile phones Nowadays, mobile phone is one of the most essential things of people. It takes much convince for people. The technology of mobile phone is increasing rapidly every day.Initially mobile phones were large in size…

Words 677 - Pages 3

Level 5 Leadership

Competency, which is a value of Level 5 leadership in which you are striving towards a goal or objective. This leadership strength helped the caseworkers to focus on an end goal for their work with each family and helped to build a solid family plan on how to achieve that goal…

Words 552 - Pages 3

Writing Level 6

Writing Level 6 Writing Analytical Assessment- Autobiography/Biography |Student Name | |Site | |Teacher | | |Trait |1 = Emerging |2 = Developing |3 = Proficient |4 = Advanced | |Ideas |* Does not…

Words 716 - Pages 3