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SRI SRI ACADEMY

NAME: ADITYA GARG
CLASS: 11 (XI) SECTION: D
SESSION: 2022-23
ECONOMICS PROJECT
TOPIC:
PRODUCTION
POSSIBILTY CURVE(PPC)
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INDEX
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SL. NO. CONTENTS PAGE NO.

1. Cover page(along with topic) 1

2. Index 2
3. Acknowledgement 3
4. Introduction 4
5. Assumptions of PPC 5-6
6. Objectives of PPC 7
7. Properties of PPC 8
8. Slope and shapes of PPC 9-10
9. Shift and Rotation of PPC 11-12
10. Solution of central problem of PPC 13-14
11. Effect of PPC due to various 15-26
government policies
12. Impact of demonetization & make in 17
india
13. Bibliography 18
14. Conclusion 19

ACKNOWLEDGEMENT
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I would like to express my special thanks of gratitude to my economics

teacher as well as our principal who gave me the golden opportunity to
do this wonderful project on the topic PPC, which also helped me in
doing a lot of research and I came to know about so many new things. I
am really thankful to them. Secondly, I would like to thank my parents
and friends who helped me a lot in finishing this project within the
limited time. I am making this project not only for marks but to also
increase my knowledge.

INTRODUCTION
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WHAT IS A PRODUCTION POSSIBILITY CURVE?

In business analysis, the production possibility frontier (PPF) is a curve
that illustrates the possible quantities that can be produced of two
products if both depend upon the same finite resource for their
manufacture. PPF also plays a crucial role in economics.The PPF is also
referred to as the production possibility curve or the transformation
curve.
From a macroeconomic perspective, the PPF illustrates the production
possibilities available to a nation or economy during a given period of
time for broad categories of output. It is traditionally used to show the
movement between committing all funds to consumption on the y-axis
versus investment on the x-axis. However, an economy may
achieve productive efficiency without necessarily being allocatively
efficient. Market failure (such as imperfect competition or externalities)
and some institutions of social decision-making (such as government
and tradition) may lead to the wrong combination of goods being
produced (hence the wrong mix of resources being allocated between
producing the two goods) compared to what consumers would prefer,
given what is feasible on the PPF.
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ASSUMPTIONS OF PPC
The production possibility curve is based on the following
Assumptions:

(1) Only two goods X (consumer goods) and Y (capital goods) are produced in
different proportions in the economy.

(2) The same resources can be used to produce either or both of the two goods
and can be shifted freely between them.

(3) The supplies of factors are fixed. But they can be re-allocated for the
production of the two goods within limits.

(4) The production techniques are given and constant.

(5) The economy’s resources are fully employed and technically efficient.
Given these assumptions, we construct a hypothetical production possibility
schedule of such an economy in the given table.

In this schedule, P and P1 are such possibilities in which the economy can
produce either 250 units of Y or 250 units of X with given quantities of factors.
But the assumption is that the economy should produce both the goods. There
are many possibilities to produce the two goods. Such possibilities are В, С and
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D. The economy can produce 100 units of X and 230 units of Y in possibility B;
150 units of X and 200 units of Y in possibility C; and 200 units of X and 150
units of Y in possibility D. The production possibility schedule shows that
when the economy produces more units of X, it produces less units of Y
successively. In other words, the economy withdraws the given quantities of
factors from the production of Y and uses them in producing more of X. For
example, to reach the possibility С from B, the economy produces 50 units
more of X and sacrifices 30 units of Y; whereas in possibility D for the same
units of X, it sacrifices 50 units of Y and so on.
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OBJECTIVES OF PPC
The Production possibility curve has popularly come to be a significant part of
the modern economy. It strongly helps in determining whether the given
resources are being utilised fully keeping the technology being used constant or
what goods can be produced with the same. It helps one to put forth the basic
economic production and service problem.
The Production possibility curve can also be used to depict and illustrate the
various concepts of scarcity, opportunity cost, efficiency, inefficiency, economic
growth or shifts, etc. It also enables the economy to decide what products are to
be produced and in what quantities. It plays an important role as it shows all the
alternative ways to use the economies resources efficiently.A PPF shows
businesses a way to make sense of their production possibilities by charting out
the opportunity cost of resource allocation, suggesting how to reach optimal
allocative efficiency. With scarce resources, it tells us which products to
prioritize and at what ratio, showing the maximum possible combinations of
goods and services
But, for all of its utility, it is important to remember that the PPF is still a
theoretical construct, not an actual representation of reality. It is important to
remember that an economy only costs on the PPF curve theoretically; in real
life, businesses and economies are in a constant battle to arrive at and then
maintain optimal production capacity.
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PROPERTIES OF PPC
The main characteristics of PPC are:
 Slopes downwards to the right: PPC slopes downwards from left to right. It is
because in a situation of fuller utilisation of the given resources, production of
both the goods cannot be increased simultaneously. More of commodity A
can be produced only with less production of commodity B.
 Concave to the point of origin: It is because to produce each additional unit of
commodity A, more and more units of commodity B will have to be
sacrificed. Opportunity cost of producing every additional unit of commodity
A tends to increase in terms of the loss of production of commodity B.
Production will act upon the law of increasing marginal opportunity cost.
 Increasing Marginal Rate of Transformation: The slope of PPC (MRT) shows,
for the production of every additional unit of one good, more and more units
of other good has to be sacrificed. In other words, as we move down along the
PPC, the slope of PPC (or MRT) increases.
 Optimum utilisation of resources: The points that lie on the Production
Possibility Frontier are associated with full employment of resources and
efficient utilisation of the available technology.
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SLOPE AND SHAPES OF A

PPC
To put it simply, there are three main types of production possibility curves
(PPCs). The first is the ‘bowed out’ PPC. Here’s how it looks:


I would say that this is the most common type of PPC, and its one that represents
increasing opportunity cost as you move along the curve. Why? To put it in a
nutshell: because of the overspecialization of Factors of Production in producing
only one type of good.
 The second type of PPC is the one right here:
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If the ‘bowed-out’ PPC depicted increasing opportunity cost, then it’ll be fair for
you to assume that this ‘bowed-in’ PPC depicts decreasing opportunity cost as
you move along it.

 The third and final type of PPC is one that is ‘bowed in’. Here’s how it looks:

As you can probably infer from the straight line, this PPC represents a constant
opportunity cost as you produce more of one good (eg. butter), and less of
another (eg. guns) - i.e. as you move along the PPC.
In summary, the shape of your PPC really depends upon how opportunity
cost changes as you produce more of one good, and less of another.
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SHIFT & ROTATION OF PPC

The various types of shift and rotations of a production possibility curve
are:-
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SOLUTION OF CENTRAL
PROBLEM OF PPC
Production Possibility Curve is nothing but a combination of points, where each
point shows the quantity of two different goods that can be produced by an
economy, assuming that the resources and technology are being used efficiently.
It’s a concave shaped graph when x and y axis show the quantity of two goods.
Solving the central problems of the economy consists of answering 3 basic
questions:
What to produce?
How to produce?
For Whom to produce?
PPC provides the answer by determining the point the economy is operating on,
so that steps can be taken to reach a desired point.
 What to produce?
PPC helps to determine which goods or which types of goods are to be
produced. For eg, if x axis shows necessary goods and y axis luxury goods, so
depending on the conditions, a point can be selected to either produce more of
one type of goods or the other. In real world, economy can decide whether to
produce more of wheat or more of ACs. It also depends on factors such as
social conditions, market conditions.
 How to produce?
This is about the technique used for production. The technique should be such
that resources are used fully and efficiently and economy operates on PPC
and not under it. In India, labor intensive technique might seem more suitable
for production of goods since labor is cheaper and abundantly available.
 For Whom to produce?
This tells about the distribution of goods and service and disposition of
income generated from sale of goods and services. The income generated
should be distributed among the factors of production in such a way that basic
needs of every factor is satisfied to the maximum possible extent. In India,
since there are wide income inequality gaps, the govt. tries to employ its
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resources for production of goods required by masses and not high end
products.
A sample PPC curve looks like the following:

Here, point A is a point under the PPC (under-utilization) and point B is a point
on the PPC (efficient utilization). The aim of solving central problems through
PPC is to get the economy to operate on a point on the PPC.
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EFFECTS ON PPC DUE TO

VARIOUS GOVERNMENT
POLICIES
The effect of various government policies on the production possibility curve
are:-
 EFFECT OF GOVERNMENT POLICIES:- There can be a good effect or bad
effect of different government policies on PPC. It is based on which policies
will make production more or which will make production less. Due to
different policies of government the PPC can be shifted rightwards or
leftwards it can also be rotated if technique will be improved due to certain
policies.
 EFFECTS DUE TO GST:- Production possibility curve will undergo a
rightward shift. The reason for that is- goods and service tax has an edge over
the erstwhiles indirect taxation system with regards to input tax credit.
Previously while tax calculation the tax payer got input Credit only for the
excise service and VAT production it means if CST, customs or any other
indirect taxes are payable during sale no credit On such taxes could be set off
against The similar taxes paid during purchase of inputs for production.
Unlike it, GST has optimal provision for availing input tax credit, which has
made GST cost efficient Consequently, capital goods became cheaper than
before causing multi-fold increase in domestic as well as foreign direct
investment this has increase the production possibility curve the statement of
an increase in investment is backed by the post GST statistical evidence of
gross fixed capital formation that increase from 1.6% in quarter 1 To 4.3% in
quarter 2 In short run the point will shift inside PPC because of the removal of
taxes and supplier will decrease production in long run there will be an
increase in foreign investment which would Increase GDP and PPC will shift
to the right.
 EFFECTS DUE TO CLEAN INDIA MISSION PPC:- in the long run shift
right words thereby expanding the the economy due to increase employment
higher demand, more foreign currency inflow from tourist, better picture of
India in the world, higher ranking, multiplier effects etc. There are two types
of resources human resources and physical resources clean India mission will
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obviously have a positive impact on our society as it will lead to increase

efficiency in human resource. Eco-friendly environmental conditions and
sanitation will enhance the quality of human resource and will increase
productivity and the overall output. Hence it will lead to to a rightward shift
in PPC curve of the country.
 EFFECTS DUE TO SKILL INDIA MISSION:- Skill development programs
like skill India Are aimed at human capital formation that is it increases the
capacity and skill of human resources. Show with the same amount of
resources we can produce more goods and services in the economy due to
improve skills. Suppose you have an unskilled worker from Village if you
train that person on productive jobs skill India then he walks in a more
efficient manner then before and can produce more Goods and services with
his Improve skills and hence it promotes economic growth. When we improve
the skills off existing Workforce productivity increases economic growth
happens and PPC shift right words.
 EFFECTS DUE TO DIGITAL INDIA:- Digital India programme will lead to
Improvement in technology better technology in the sense of improved online
infrastructure and internet connectivity will increase the production capacity
of the economy accordingly the PPC will shift to Right. Impact of
demonetization in India effect PPC off India in short term PPC off India shift
to left words in India everyone is not aware about internet banking of online
payment people Face Money problem and do not use fully utilized resources
in short period. It’s cause PPC shift to left words.
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IMPACT OF
DEMONITISATION & MAKE
IN INDIA ON PPC
 EFFECTS DUE TO DEMONETISATION:- All the points on the PPC depict
Efficient outcomes that is we are reducing exactly the amount which can be
produced by the fixed number of resources but that’s an ideal case We are
obviously inside the area of feasible but inefficient outcomes because it’s very
difficult to have all the outcomes as efficient. There are two scenarios 1. in
short run since the society was depending on cash for a long time, There
purchasing power decreases because of demonetization decreases industries
which cannot change there supply immediately will have inelastic supply and
some other will have a bit elastic relative to to others overall it will be a less
efficient outcome compared to previous one.
 In long run however the growth rate will increase because society will be
moving towards a cashless society which will lead to more buying hence
more production. The production will Definitely increase in the long run.
Moreover, better Technology can also come in the long run positively
reinforcing the effect to the about in long run . So in long run the outcome is
expected to move Rightwards.
 EFFECTS DUE TO MAKE IN INDIA:- Government make in India campaign
Aims at transforming the country into a global manufacturing Hub and has
already made tremendous impact on the investment climate as evidenced by
the growth in foreign direct investment. So when Investments increases by
make in India campaign it will make PPC shift right word as production will
increase it represents economic growth. Economic growth is an increase in
what an economy can produce if it is Using all its starts resources an increase
in an economics productive potential can be shown by and outward shift in
The Economies production possibility curve. On micro level if make in India
goes well then it will increase in employment rate more quantity of supplied
goods lower prices for consumers multiplier boost to economy etc.
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BIBLIOGRAPHY
Websites:-
 www.googleimages.com
 www.investopedia.com
 www.economics91.com
 www.brainly.com
 www.quora.com
 www.meritnation.com

Books/Magazines:-
 ECONOMICS- Frank certificate by D. K. Sethi
 THE CONTRACT CURVE AND PRODUCTION POSSIBILITY CURVE-
available on www.journals.uchicago.edu
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CONCLUSION
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