ProductionPossibilities Curve ( PPC)

 The production possibilities curve ( PPC ) is used to explain the basic economic concepts of scarcity , choices and opportunity cost .
  The PPC shows the various possible combinations of goods and services produced within a specified tie with all its resources ( labour , land and capital ) fully and efficienclty employed . Let us make the following three specific asumptions to illustrate the PPC .

1. The economy is operating in full employment and full production capactiy ( full efficiency ) .
2. The amount of resources available is fixed .
3. The state of technology does not change throughout production .  Let us assume that a country named JAYA produces two products - butter and sewing machines . Butter is symbolic of consumer goods and sewing machines are symbolic of capital goods . The PPC can be illustrated by use of a table or graph . 

The explanation for Figure 1.1 is as follows :

• The line connecting points A to F is JAYA'S Production Possibilities Curve (PPC) . It separates the attainable from the unattainable . Points A to F are the best possible combinations of resources to enable full tilizationa dn to ensure that the country is at full employment . If all the factors of production are used in the production of butter only , JAYA's economy can produce 5,000 kg of butter . On the other hand , if the resources are used in the production of sewing machines only , then , 15,000 units of sewing machines can be produced . Besides these two extremes , the other combinations also show different possibilities . For example , Point C shows JAYA producing 2,000 kg of butter and 12,000 units of sewing machines while Point D shows 3,000 kg of butter and 9,000 units of sewing machines being produced .
• Any point inside the PPC ( such as Point Y ) - These combinations of production are attainable , that is , it is possible to produce butter and sewing machines of this quantity . But it shows waste of resources and inefficiency since the production has not reached its maximum level. For example , at point Y , only 12,000 units of sewing machines and 1,000 kg of butter are produced . Given the available resources , JAYA can produce 12,000 units of sewing machines and 2,000 kg of butter . THis shows under production of 1,000 kg of butter if the combination of production was at point Y . This also leaxs to unemployment .
• Any point outside the PPC ( such as Point Z ) - This demonstrates the main basic economic concept : scarcity .   ( At this point due to limited resources and technology , JAYA is unable to meet production . Points outside the PPC are unattainable . For example , at Point ZJaya wants to produce 16,000 units of sewing machines and 5,000 kg of butter , but due to limited resources and a limited state of technology , this cannot be achieved . When JAYA's wants exceed output , there is scarcity .
• Any point along the PPC ( such as point A , B , C , D , E and F )  - It shows the second concept : choices .  - JAYA will have to make its choices from various possible combinations of sewing machines and butter , which will maximize its satisfaction . SInce JAYA cannot produce at point Z , it will choose any point along the PPC which is both attainable and efficient .
• Movement from one point to another ( such as point C to D ) - It shows the third concept : opportunity cost  JAYA must gorgo sewing machines if it wants an additional 1,000 kg of butter . For example , JAYA needs more butter  , so the production will move from point C to point D . In order to obtain additional 1,000 kg of butter , JAYA has to forgo 3,000 units of sewing machines  . The opportunity cost of producing an additional 1 kg of butter is 3 units of sewing machines .

PPC enables us to calculate the opportunity cost as shown in Figure 1.2 (a) and (b) .


The movement down from point A to point F on the PPC is the opportunity cost of butter . The opportunuty cost increase with the quantity of production .

The movement from point F to Point A on the PPC , is the opportunity cost of sewing machines . The opportunity cost increases with the quantity of production .