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Production Possibilities Curves
Production Possibilities Curves
PPC's are all about choices, where to put your resources. Imagine a simple choice you make every day: do i put my time into getting better grades in English or in Econ, or some of both?
- Specialized Resource
A given amount of a Factor of production produces more of one product than another.
- Non-Specialized Resource
A resource that is equally efficient at producing two or more products.
recall--to get outside the PPC into the infeasible area, we need a change in the total factors of production.
Note:
As we convert a resource from Good x to Good y, we do not always get the same amount of the new good due to specialization.
(recall the cow trying to make guns, or stroupe trying to translate Chinese).
Sometimes, resources are just as good at producing two different products. For example, the resources at ISY might be just as good producing Female graduates as Male graduates. Therefore the PPC in a non-specialized production processes might look like:
So if you lose a unit of corn, you always get the same additional number of coffee units because the resources are equally good at each production process.
3Things about PPC:
1. Shows the opportunity cost of changing from one product to another
2. Shows all max output choices for an efficient economy.
3. Shows the difference between specialized and tansferable resources
Recall Opportunity Cost and Utility:
1. McDonalds is considering opening a restaurant in yangon. How will they use opportunity cost as a part of this decision?
Review:
2. You go to J's Donuts to get a tasty donut knowing that you have a utility of 2000 kyat for the donut, but J's sells them for only 800kyat. But if J's sells them for this price (below your utility), according to the law of utility, why would you ever stop buying donuts and leave J's Donuts?
Specialized Resources:
NON-Specialized Resources
Corn
Coffee
Production Possibilities Curves try to present in a graph all the production choices open to an economy--in other words how much of each product to produce.