3.The Production Possibility Curve (PPC)

The Production Possibility Curve can be used to illustrate the concepts of scarcity, choice and opportunity cost.

At the end of this lecture you will learn:

1.What is a PPC? / Drawing a PPC

2.Usefulness/application of the PPC

3.Shape of the PPC

4.Illustration of Economic Growth using the PPC

5.How Potential Growth can be achieved

6.Using the PPC to illustrate the Benefit of Specialisation and Trade

1. What is a PPC? / Drawing a PPC.

Read Pages 10-11 of your lecture notes as you view the video.

2. Usefulness / application of the PPC.

Read Pages 11-12 of your lecture notes as you view the video.

3. Shape of the PPC.

Read Pages 13-14 of your lecture notes as you view the video.

4. Illustration of Economic Growth Using the PPC

Read Pages 14-16 of your lecture notes as you view the videos.

Actual Growth

Potential Growth

5. How Potential Growth can be Achieved

Read Pages 16-20 of your lecture notes as you view the videos.

6. Using PPC to illustrate Benefits of Specialisation and Trade

Read Pages 20-22 of your lecture notes as you view the videos.

Summary

• The PPC shows all possible combinations of two goods that a country can produce within a specified time period, given the inputs and technology available.

• The PPC is a useful tool for explaining the concepts of scarcity, choice and opportunity cost.

• Points on the PPC indicate that resources are fully and efficiently utilised. These also represent attainable output combinations with the given level of resources and technology.

• Points within the PPC indicate that resources are not fully or efficiently utilised.

• Points beyond the PPC indicate unattainable output combinations.

• A change in quantity of resources, quality of resources, or level of technology would result in a shift in the PPC.

Answer the following questions to test your understanding.