Production Possibilities Graph (PPG)

• The line on the PPG is known as the frontier or the curve. 

• Production Possibilities Curve (PPC)
• When producing at the frontier efficiency occurs.
• When producing beneath the frontier under utilization is occurring.

• Production Possibilities Frontier (PPF)
• Efficiency - using resources in such a way as to maximize production of goods and services efficiency increases profits.
• Undervaluation - It is the opposite of efficiency is using fewer resources than an economy is capable of using.
• leads to a decrease in profits.

• 2 Types of Efficiency 
• Productive - Products are being produced in the least costly way. This is any point ON the production possibilities curve.
• Allocative - The products being produced are the ones most desired by society. This optimal point on the PPC depends on the desires of society.

• The law of increasing opportunity cost
• When resources are shifted from making one good or service to another the cost of producing the second item increases.

 3 Types of movement occur within PPC

 

Point B - attainable and efficient inside the curve

Point D - attainable and inefficient. Recession under utilization. Famine unemployment/underemployment of resources.

Point E - unattainable using current resources. Technology and Economic growth

• 4 Key Assumptions

1. Only 2 goods can be produced
2. Full employment outside points of resources
3. Fixed resources (factors of production)
4. Fixed technology

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