Production Possibility Curve

▶Economic Problem- It is the problem of choice arising due to problem of allocation between limited resources and unlimited wants.

▶Resources are limited and have alternative uses.
▶Wants are unlimited and have repeating nature.

▶Central Problem Of Economics- The problem related to what to produce, how to produce and for whom to produce is consider es as central problem of economics.

1. What to Produce- (i) Capital Goods
                                   (ii) Consumer Goods

(i) Capital Goods- Those goods which help in production of other goods. Example: Machines

(ii) Consumer Goods- Those goods which are ready to be consumed by the consumer. Example: Bread.

2. How to Produce- (i) Capital Intensive
                                  (ii) Labour Intensive

(i) Capital Intensive- More use of capital  (Machines) than labour, i.e., M>L.

(ii) Labour Intensive- More use of Labour than machines, i.e., M<L.

3. For Whom to Produce- (i) Factor Distribution
                                 (ii) Interpersonal Distribution

(i) Factor Distribution- Distribution among Groups of people.

(ii) Interpersonal Distribution- Distribution among individuals.

▶Production Possibility Curve

● It is also known as Production Possibility Frontier and Transformation Curve.

◆ It is curve which shows different combination of two commodities which can be producer assuming resources efficiently and fully utilised.

● Assumptions- It is made for getting maximum Possibilities.

(i) Resources- ◆ Constant
                         ◆ Fully Utilised
                         ◆ Efficiently Utilised

(ii) Technique of Production- ◆ Constant
                                                  ◆ Highly Modified.

(iii) Two Commodities.

     Combinations |    Wheat   |    Rice   |
               A            |    100        |      0      |
                B           |     90         |   10       |
                 C          |    70          |   20       |
                  D         |     40         |      30    |
                   E        |         0        |   40      |

▶NATURE

   Wheat ⬆  Rice⬇
◆ When wheat is increasing Rice is decreasing. It means there is an inverse relation.
◆ Wheat is decreasing with more unit than Rice is increasing. When wheat decreses with 20 units(90-70) Rice is increases with 10 unit(10-20).

▶Features Of PPC

(i) Downward Slopping- As resource is Constant, we need to sacrifice on commodity for the production of other.
(ii) Concave From the point of origin- Increasing Marginal Opportunity Cost (MOC).

▶MOC- It is the ratio which represents how much of one commodity is sacrifice for production of one extra unit of other.

   ◆ MOC = Change in loss ÷ Change in gain
   ◆ MOC = ∆Loss ÷ ∆Gain.

▶Opportunity Cost- It is the second best alternative which is being sacrificed by an individual for opting first Opportunity.

Combinations |    Wheat   |    Rice   | OC |  MOC
              A        |    100        |      0      |   --  |     --
               B       |     90         |   10       | 10  |10/10= 1
                 C      |    70          |   20      | 20  |20/10=2
                  D     |     40         |      30   | 30  |30/10=3
                   E    |         0        |   40     | 40  |40/10=4

▶Shape of PPC when
(i) MOC⬆ - Concave
(ii) MOC⬇- Convex
(iii) MOC Constant- Straight Line.

▶Shift In PPC
Direction- Right ward
Reason- Increase in Resources

Direction- Left ward
Reason- Decrease In Resources

▶Rotation in PPC
Reason- Increase and Decrease In technology of one commodity.