Unit 1- Production Possibilities Graph

Production Possibilities Graph (PPG)

PPG- Graph showing alternative ways to use an economy's resources.

PPC- Production Possibilities Curve

PPF- Production Possibilities Frontier

Source: https://www.tutor2u.net/economics/reference/production-possibility-frontier

Point(s) on the graph meaning:

• Inside the curve- Underutilization, underemployment, unemployment.
• On the Curve- Efficient
• Outside the Curve- Unobtainable at the current time, requires economic growth or new technology to become obtainable.

Key Assumptions

1. Full employment (4-5% unemployment, 90% factory capacity)
2. Fixed resources
3. Fixed state of technology
4. No international trade
5. Two goods are produced.

Three Types of Movement on the PPC

1. Inside the PPC: Due to unemployment, underemployment, or underutilization 
2. Along the PPC: This results in producing more of one good and less of the other
3. Shifts of the PPC: Due to resource or technology changing

Allocative efficiency- products being produced are the ones that are most desired by society 

Product efficiency- products are being produced in the least costly way (any point on the PPC)

Underutilization- Using fewer resources than an economy is capable of using

Source: https://www.tutor2u.net/economics/reference/production-possibility-frontier

Law of increasing opportunity costs- As you produce more of one good, the opportunity cost will increase. Will result in a concave or bowed out curve.