Production Possibilities Curve

1. Production Possibilities Curve A curve that shows the different combinations of two goods that the economy can produce, given its resources and the level of technology.

2. Assumptions • Two Goods • Fixed Level of Resources • Given Level of Technology • No Unemployment

3. EXAMPLE • Bread Combination Books • 0 A 150 • 30 B 140 • 60 C 120 • 90 D 90 • 120 E 50 • 150 F 0

4. 150 Books A B C 120 D 90 F 60 30 G 150 30 60 90 120 O Bread

5. Opportunity Cost The value of the next best alternative that is sacrificed when a decision involving scarce resources is made.

6. Books C 120 D 80 90 60 Bread The opportunity cost of moving from C to D is the loss of 40 units of books As bread production increases by 30 units.

7. Books . U Bread At point U there is unemployment of resources. Either bread production or book production (or both) can be increased without an opportunity cost. That is, the production of the other good does not decrease when the production of one of the goods is increased.

8. Books Bread Economic growth occurs when the economy’s ability to produce goods and services increases. This is shown by a shift out in the production possibilities curve and is caused by an increase in the economy’s resources or level of technology.