Production Possibility Curve

This presentation deals with definition, assumption, limitation and shift in production possibility curve.

2. Meaning

> Production possibility carve (PPC) is a graphie
representation of various production possibilities of tuo
goods at given Tine, with given resources and technology
° Sk ie a maximum possible output combination
o Also known as
— Production possibility frontice (PLE)
— Production transformation curve

Prepared By; Neeti Gupta

3. Quantity of Good Y

Quantity of Good X
V4 Graphic Representation % Good X ard Good Y
Y Paseibility of Production Poseihiities are given by port BC ard D
V Pont A [sith point): Situation of efficient ase of resources a it ie below PPC
V Part X (outside point): Unattumable situation as PPC represente full acilication

of resources
Prepared By: Necti Gta

4. Assumption

> le study combinations of only two goods

+ All resources ave fully employed

> Technology and production Techniques remain constant
> Technology is used efficiently

> Kesources are fixed

© Production possibility ie studied at a given point of time

Prepared By: Necti Gupta

5. Importance

e As productive resources of the economy are always
limited, PPC helps in deciding commodities most
beneficial lo society

. Helps in deciding what amount of goods are to be
produced amongst different alternatives available
fi For example alternative B,C or Das represented

im previous graph 7)

Prepared By: Neots Gupta

6. Limitations

e There is a choice between two commodities only

o /¢ talks about produc bon capabilities but doesn t
consider want of ‘goods

© /¢ doosn t consider satisfac bon ‚generated with
accepled outcome

Prepared By: Most Gute

7. Shift in PARC

DUETO
Change in Technology
Change in Resources
V Forward shift if favorable change in Technology OF inerease It

available FESOUPCES

V Backward shift # anfavorable change it Technology OF decrease

in available resources

Prepared By: Meets Gate

8. Quantity of Good Y .

o

Quantity of Good X

FORWARD SHIFT
Favorable Change

Sift x PPC
When change ¡8 in both the goods

Prepared By: Neots Gupte

Technetegg or Resources
y
>| _
3 eons,
8 = .
= Y
©
2
E Y
y
5
9 L
x o u P PX
Quantity of Good X
BACKWARD SHIFT

Unfavorable Charge

9. Shift in FFC ek OE
When change 18 ik X Good &
Te 27772 or Reseuces

Y Y

> >

u 3

o ©

© o

[0] ©

- m

© ©

2 2

= =

a =

5 6

= =

o o
Quantity of Good X Quantity of Good X

FORWARD SHHFT IN QUANTITIOFX BACKWARD SHIT IN QUAN TT OFX

Favorable change x X Good Unfavorable change in X Good s

Technology or Resources Technology or Resources

10. Shift à PRO Prepared By: Meets Gate

When change is in Y Goods
Teeheclong or Festerces

Y Y

= =

3 S

= =

E =

E =

5 3

5 3

= x

o o =
Quantity of Good X Quantity of Good X
FORWARD SHUT IN QUANTITY OF 4 BACKWARD SHUT IN QUANTITY OF Y
Faverable change in Y Good 5 technology Unfavorable change à Y Good &

or resources. Technology or Resources