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CHAPTER 4 : PRODUCTION POSSIBILITY CURVE

Key terms
1. Production Possibility Curve (PPC) : a curve that shows the maximum
combination of two goods that can be produced by existing resources and
technology.

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1. PPC and point

• ON PPC : Point X, Y, Z : ⇒ Efficiency

• Below PPC : Point W, U : ⇒ Inefficiency
• Above PPC : Point T :Unobtainable or above capacity

2. PPC and opportunity cost

• Economic problems arise from limited resources and limitless want.

• When a country increases the production of output B from 10 units to 20 units, it
has fewer resources available to produce output A. The production of output A falls
from 100 units to 80 units from Point X to point Y.
• The opportunity cost of an extra 10 units of output B is the loss of 20 units of output
A. (100-80=20units).
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3. Shift in production possibility curve (PPC)

• The PPC shifts outward, meaning that there will be higher maximum outputs or
economic growth. ( XX to YY)

4. Factors causing a shift outward of PPC

Increase Quantity Factor of Increase Quality Factor Technological Advance

production of production

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