PRODUCTION POSSIBILITIES CURVE (PPC)

On Monday, 25th of January 2016, the class was still continued with the last topic from the previous class which was attainable & unattainable combination of Production Possibilities Curve (PPC).

Attainable and unattainable combination

• Attainable and efficient combination

-With reference to PPC graph, the best possible combination are point A and B (attainable). Where resources are fully utilized and the country is said to be at full employment level. The firm is also to be efficient (no waste in the use of resources).

• Attainable but not efficient combination

-Combination C (inside PPC) is attainable because it can be produced, but the economy is not efficient and the resources are not fully utilized (unemployment exist)

• Not attainable combination 

-Combination D is not attainable because it situated outside the PPC. It cannot be producing because not enough resources and new technology.

• Extreme Combination

-Extreme combination is combination can be produced and it efficient but all resources will use for produce only one goods.

Change in production possibilities curve

Each combination of production possibilities curve can increase or decrease due to several factors. Increased or decreased in production possibilities curve can occur for one side product only, or both. There are many factors that cause the shift of production possibilities curve.

• Increasing in population

Manufacturers will increase the volume of goods when there is an increase in the population. Production of both goods will increase. This causes production possibilities curve shift to the right.

• Technology progress.

The factors can shift the PPC outward through an improvement in technology. It allows more efficient production using existing economics resources. Based on diagram above, if the improvement of production (technology progress)  happened only in producing goods X, the economy will produce more goods X compare to goods Y. So, the PPC will shifted outwards towards the horizontal axis.


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