# Production probability curve. 2.2 The Production Possibilities Curve 2022-11-20

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A production probability curve, also known as a production possibility curve or frontier, is a graphical representation of the different combinations of goods and services that can be produced within an economy given the available resources and technology. The curve shows the maximum output of one good or service that can be produced for every possible level of production of another good or service.

The shape of the production probability curve can vary depending on the technology and resources available to an economy. If the resources are highly specialized and cannot be easily reallocated to produce different goods, the curve will be relatively steep, indicating that it is costly to switch production from one good to another. On the other hand, if the resources are more flexible and can be easily adapted to produce a variety of goods, the curve will be relatively flat, indicating that it is easier to switch production between different goods.

The production probability curve is a useful tool for understanding the trade-offs that an economy faces in terms of production. For example, if an economy is currently producing a large quantity of one good, it will have to give up some production of another good in order to continue producing the first good at such a high level. This trade-off is represented by the slope of the curve at any given point.

In addition to showing the trade-offs that an economy faces, the production probability curve can also be used to illustrate the concept of opportunity cost. Opportunity cost refers to the value of the next best alternative that must be given up in order to pursue a particular course of action. In the context of the production probability curve, opportunity cost is represented by the difference in the levels of production of the two goods at any given point on the curve.

There are several factors that can shift the production probability curve. For instance, an increase in the availability of resources or a technological advancement can allow an economy to produce more of both goods, shifting the curve outward. On the other hand, a decrease in resources or a technological setback can cause the curve to shift inward, resulting in a lower level of production for both goods.

In conclusion, the production probability curve is a useful tool for understanding the trade-offs and opportunity costs that an economy faces in terms of production. It can be used to illustrate the relationship between the production of different goods and the resources and technology available to an economy.

## 2.2 The Production Possibilities Curve

This is illustrated in Figure 3. A movement from A to B requires shifting resources out of the production of all other goods and services and into spending on security. When more people in the work force get educated or trained, we refer to that as human capital. Points along the curve describe the tradeoff between the goods. These resources were not put back to work fully until 1942, after the U.

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## Shifts in the Production Possibilities Curve

In this case, beef is on the y-axis and corn is on the x-axis, but it is not important which good goes on which axis. Movement along this curve reveals the trade-offs that are required to produce more or less of a good. You do not need to graph every single possibility, as just a few points are enough to draw the graph. Student may prefer to use graph paper to complete the assignment. For this example, let's suppose your hypothetical economy produces pizza and wine.

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## Production Possibility Curve: meaning, definition, example, diagram

Allocating more resources to produce tables leaves fewer resources available to produce chairs. Dedicating all the raw materials to model B production would result in 300 model B vehicles. This is also indicative of some level of unemployment. Much of the land in the United States has a comparative advantage in agricultural production and is devoted to that activity. In this case we have categories of goods rather than specific goods.

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## What Is the Production Possibilities Curve in Economics?

Figure 1 shows an example of a basic production possibility curve: Fig. If the country experiences more unemployment, then the unemployment rate goes up. Importance It is an important concept in economics that helps us understand the choices an economy faces in allocating resources efficiently. The sacrifice in the production of the second good is called the opportunity cost because increasing production of the first good entails losing the opportunity to produce some amount of the second. Industrial Economics: An Introductory Text Book.

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## Production Possibility Curve Explained

It plays an important role as it shows all the alternative ways to use the economies resources efficiently. Dedicating all 100 units to the production of model A vehicles would result in 50 model A vehicles. Â In the graph, the line sloping down also depicts the trade-off between producing commodity A and commodity B. When you shift resources to produce more crab puffs and fewer storage sheds, you can visualize the opportunity cost of crab puffs. If not, the company might decide to sell the machine and focus only on hats.

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## Production Possibilities Curve: Definition and Examples

The management utilises this graph to plan the perfect proportion of goods to produce in order to reduce the wastage and costs while maximising profits. Likewise, moving production from point B to point A comes at a cost of 15 tons of corn. Distribute copies of the warm-up activity. This would decrease the output of the nation, and shift the production possibilities curve inward, or to the left. Increasing the availability of these goods would improve the standard of living. Problem The production possibilities curves for the two plants are shown, along with the combined curve for both plants. Shifts in Resources Changes in resources are also going to shift the curve - for example, if a country discovers a new energy source, like new solar panels, let's say.

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## Production Possibility Curves: Example, Types & Graph

Now draw the combined curves for the two plants. Thus, the economy chose to increase spending on security in the effort to defeat terrorism. These points will form the eventual ends of your production possibilities curve. Airports around the world hired additional agents to inspect luggage and passengers. Graphing phones against beef production wouldn't make sense since both goods rely on different resources; however, graphing beef production against corn production would be beneficial to look at since both require land. In Panel a we have a combined production possibilities curve for Alpine Sports, assuming that it now has 10 plants producing skis and snowboards.

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## How to Use Excel to Make a Plot Production Possibilities Curve

We shall examine the significance of the bowed-out shape of the curve in the next section. Related: Production Efficiency Formula: What It Is and Who Uses It 4. Two years later she added a third plant in another town. A point that falls below or to the left of the curve is manageable. Where will it produce them? That is because the resources transferred from the production of other goods and services to the production of security had a greater and greater comparative advantage in producing things other than security.

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## Production Possibilities Curve: Definition & Examples

They do not account for the opportunity costs associated with a decision, such as lost production in one sector while producing more of another. . Output began to grow after 1933, but the economy continued to have vast numbers of idle workers, idle factories, and idle farms. We're producing the most that we can with the least amount of costs. If the given resources are used for the production of wheat alone, then let us say that 10 Lakh tonnes of wheat can be produced.

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