- The Production Possibilities Curve
- the alternative combinations of final goods and services
could be produced in a given
period with all available resources and technology.
- each point on the production possibilities curve depicts
alternative mix of output.
- the production possibilities curve illustrates two
- Scarce resources – there is a limit to the amount we
produce in a given time period with available resources and technology.
- Opportunity costs – We can obtain additional
of any desired good only by reducing the potential production of
- Increasing Opportunity Costs
- the shape of the production possibilities curve reflects
limitation on our choices.
- why do opportunity costs increase? because it is
difficult to move resources from one industry to another.
- the “law” of increasing opportunity cost says that we
give up ever-increasing quantities of other goods and services in order
to get more of a particular good.
- increasing opportunity costs aren’t a sign of
- efficiency means “getting the most from what you’ve got”
that is, using factors of production in the most productive way.
- maximum output of a good from the resources used in
- there’s no guarantee, of course, that we’ll always use
- a production possibilities curve shows potential output,
necessarily actual output.
- if we are inefficient, actual output will be less than
- Economic Growth
- an increase in output (real GDP); an expansion of
- all output combinations that lie outside the production
possibilities curve are unattainable with available resources and
- over time, population increases and we get more
Also, if we continue building factories and machinery, the stock of
capital will also increase.
- the quality of labor and capital can also increase if we
workers and pursue new technologies.