PRODUCTION POSSIBILITY CURVE

(PPC)
 Also known as

PRODUCTION POSSIBILITY FRONTIER

(PPF)
/
PRODUCTION POSSIBILITY BOUNDRIES
(PPB)
It is the diagrammatical/ pictorial representation
of country production potential and allocation of
resources.
Good A

Y
P

O Good B
In the above diagram, line OA and OB shows the
maximum output of good A and good B
respectively. If a country is producing on the PPC
curve line (point XYZ) it means that the country
is utilizing all of its resources efficiently and
there are no spare resources available to
country (country has achieved full employment
level).
• If the country is producing under the curve
like on point P it means that country is not
utilizing all of its resources efficiently and the
country have spare resources available to it.
• Point Q or any point beyond PPC curve is an
unattainable in a short run, and is only
possible through international trade.
Full employment
level curve
 Shift In PPC
Rise in PPC curve Outward
results in Increase /
in production Rightward
potential (increase
in full
employment
level)

0
 Shift In PPC
decrease in PPC Inward
curve /
results in decrease leftward
in production
potential (decrease
in full
employment
level)
0
 Reasons of shifts in PPC curve
• Land
 Discovery of natural resources like mines, oil etc. will lead to
outward shift of PPC.
 Depletion/ Extortion of resources will lead to backward shift of
PPC.
• Labour
 Increase in skills, training, qualification, positive migration of
Labour will lead to rightward shift of PPC.
 Decrease in skills, training, qualification, negative migration of
Labour will lead to leftward shift of PPC.
 Reasons of shift in PPC curve
• Capital
 Introduction of new technology, becoming more capital intensive
will lead to outward shift in PPC.
 Outdated machinery/ technology, becoming more labour
intensive will lead to backward shift of PPC
• Entrepreneur
 New investment, qualification, training programs will lead to
outward shift and vice versa (lack of investment).
 Difference between employment and full employment

Increase in full employment level Increase in employment

Good A
Good A

0 0
Good B Good B
 Example
There are 50 50
chairs in a class
25 are occupied
for boys, G 25
i
while 25 are
r
occupied for girls
l
s

0 Boys 50
If we want to 50
increase boys G
capacity in class
I
from 25 to 30, then
R
we have to
L
decrease girls
capacity from S
25 to 20, due to
scarcity and the 20
5 girls are
opportunity cost.

0 Boys 30 50
• If a country is
producing under
its PPC curve, then
G
for increasing o
production of one o
d
good it might not A
have to forgo
production of the
other good due to 0
Spare resources Good B

available.
 Different shapes of PPC
Increasing Opportunity cost • IF PRODUCTION OF GOOD A
A IS INCREASED BY 10 %,
PRODUCTION OF GOOD B
WILL HAVE TO BE
DECREASED BY MORE THEN
10 10%, WHICH IS ATLEAST 11
% %. This is because factor’s of
production are not fully
mobile.

0
B
11%
 Different shapes of PPC
Decreasing Opportunity cost
A • If production of good A, has
to be increased by 10%,
then production of good B,
has to be decreased by less
10
then 10%, or maximum by
% 9%.

0 B
9%
 Different shapes of PPC
Constant Opportunity cost
A • In this diagram, production
of good B will have to be
decreased by exactly the
same %, by which
10 production of A has been
% increased, which is 10%.

0
B
10%
 Different shapes of PPC
PPC with no opportunity cost
A • This is an assumption that if
resources were unlimited
then PPC would be like this.

0 B