Production Possibility Frontier/ Production Possibility Curve

Production Possibility Frontier/Curve with a graph, Careerneeti,Green background


Every economy in the world today faces the scarcity of resources. These resources also have alternative usage, so every economy has to decide how much of these available resources to use in the production of various goods and services.


Production possibility frontier is a graph which depicts the various production possibilities of two goods or services assuming all the inputs are efficiently used, technology is constant and there is only a choice between two commodities.
The production of one commodity can only be increased by diverting the resources from another commodity.

Example:

Let us take an example of production possibility of wheat and corn. Let us assume that an economy is using all its resources to produce wheat and corn, also assuming that resources (land, labor, and capital) are equally efficient in the production of both wheat and corn.


Possibility
Wheat (million tons)
Corn (million tons)
1
0
100
2
20
80
3
40
60
4
60
40
5
80
20
6
100
0



Straight line graph between two items i.e corn and wheat
                                      Production possibility curve in a straight line


The production possibility curve in real life is not in a straight line but concave towards the point of origin.

A more realistic production possibility curve is as follows:-

Possibility
Wheat (in million tons)
Corn (in million tons)
1
0
100
2
20
90
3
40
75
4
60
55
5
80
30
6
100
0


Concave Graph of PPC between Corn and Wheat

In the above example, we assume that factors of production are not equally efficient. We assume that some agricultural plots are better for the cultivation of wheat and some are better for the cultivation of corn. If a society/ economy wants to cultivate 100 million tons of corn,  it can use the whole land for cultivating corn instead of cultivating a single grain of wheat. If the economy /society wants to cultivate 20 million tons of wheat, some land which is less suitable for corn would be used for cultivation of wheat and so on, as depicted in the diagram.

In the production possibility curve, all the points on the curve are the points of maximum production efficiency (i.e production of one commodity can be increased only by sacrificing the production of another commodity known as Opportunity Cost*)

Shifting of the production possibility curve:

There are various reasons for shifting of the production possibility curve such as:

  • Increase in resources: An increase in working-class population, labor immigration, etc can cause an outward shift in production possibility curve.
  • Improvement in technology: Any improvement in technology will result in a decrease in the cost of production thus causing an outward shift in the production possibility curve.
  • Discovery of more natural resources: If more natural resources are discovered, then the production possibility curve will shift outward.
  • Natural disaster: If a natural disaster like a tsunami, cyclone, or drought hits the economy, it will affect the land, labor, and capital, thus shifting the production possibility curve inward.
  • War: If a war is going on between two countries then it will affect badly on the land, labor, and capital, shifting the production possibility curve inward.

* Opportunity Cost / Economic Cost :


The cost of having a little more of one good by sacrificing the amount of the other good is known as an opportunity cost or economic cost.

For example: If you decide to go to a movie instead of going to your college for a day, the cost of knowledge/lecture of college is the opportunity cost for you.


We hope you find this article helpful.




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