Production+Possibilities+curve.++What+does+a+production+possibilities+curve+show?+What+will+shift+them?+What+will++cause+you+to+be+inside+them?

=Production Possibilities Curve=

A production possibilities curve [|PPC] is an economic model that shows the production efficiency and allocation possibilities of the economy for a given level of resources. More specifically, it describes a society's trade-off between two goods or services or two types of goods and services. It also provides a description of the opportunity cost of one good in terms of another.



In this graph, the production possibilities curve is the blue line from point A to point C, and any point on this line represents an efficient production combination of medical services and other goods. Point B represents one such efficient combination. Producing at any point inside the blue line is inefficient and results from not utilizing all of your resources. Producing at any point outside the blue line is unattainable unless the PPC curve shifts outward.

Shifting the PPC
Production outside the production possibility frontier is impossible, but it is possible to shift the curve out to be able to produce outside the current PPC. Shifting the PPC can be done by an increase in resources [|Factors of Production], an improvement in technology, political, or various economic, political, or legal arrangements in the economy. An increase in resouces shifts the PPC curve out due to the fact that you have more resouces to throw at the production of the goods. Increasing technology can allow you to produce goods faster allowing you to create more goods overall. It is possible for an increase in technology or resources to only affect one good. In this case one side of the curve will be shifted out and the other side will be left alone. Finally, a legal change can result in the deregulation of an industry making it cheaper to produce. This will allow the industry to produce more causing an outward shift in the PPC.

Analyzing the Shape of the PPC
As you move along the PPF, Production Possibilities Frontier, you are incurring an [|Opportunity Cost]. This is due to the fact that as you produce more of one good you have to shift resouces away from the production of the other good. This opportunity cost is not uniform throughout the curve. This is due to the Law of Increasing Opportunity costs which states the opportunity of an activity increases as you perform more of that activity. For an example look at the graph above. At point A no Medical Care is being produced, but as you begin to move to the right many units of Medical Care can be produced with small effect on Other Goods. This is because some resouces were not suited for Other Goods and, therefore, when forced to produce Other Goods they did not have that much of an effect. Taking these resources away did not effect Other Goods that much, but enhanced Medical Service a lot because they are much better suited to produce Medical Care. A hospital would not make a good factory.

Questions
Question: Where is the most efficient point on the PPC a. inside the curve b. outside the curve c. on the curve d. none of the above Answer: C. the curve is where all your resouces are being completely used.

Question: A technological change than enhances the production efficiency of one of the goods on the PPC a. shifts the whole curve out. b. shifts just the good with the technological change out c. shifts the good with the technological change out and the other good in. d. has no affect. Answer: B. A technological change that only affects one good would not let you produce another good more efficiently.

Question: The shape of the PPC is due to a. decreasing opportunity costs b. Cost-Benefit Analysis c. Constant opportunity costs d. The law of increasing opportunity costs Answer: D. As you increase the resouces used on one good, the best resources are used first and then resources that are better used for other things are used last.

Question: An opportunity cost is a. the value of the next best alternative given up. b. the sum of the values of all other alternatives. c. the only thing that can shift the PPC. d. a study comparing different jobs. Answer A. Opportunity cost is the value of the next best alternative

Question: True or False it is possible to produce outside the PPC curve. Answer: False. The curve is all the combination of using all of your resources. You cannot produce with resources you do not have.

Question: The PPC compares a. price and quantity b. income and utility c. marginal cost and quantity d. two goods Answer: D. One good is on each axis.

Question: A rise in unemployment causes a. To move inside the PPC b. To move downward along the PPC c. To move up along the PPC d. To move outside the PPC Answer: A. This causes resources to not be used.

Question: A change in the political structure of a country that makes it easier for businesses to operate. a. Moves from a point inside the curve to a point closer to the curve b. Shifts the whole PPC out. c. Shifts the whole PPC in. d. Moves from a point outside the curve to a point closer to the curve Answer: B. Lets companies utilize more of their resources.

Question: The reason the PPC is shaped the way it is, is due to a. decreasing opportunity costs. b. increasing opportunity costs. c. constant opportunity costs. d. the law of marginal productivity. Answer: B. This is based on the Law of Increasing Opportunity Costs.

Question: True or False All resources used in the production of two different goods are just as effective for both goods. Answer: False. Some resources are better suited for producing other goods.