Production Possibility curve

Date : 11.05.2020 
Sub  : Economics
Day  : 1
Time : 10:45am - 11:25am
Period : 5
Class    : 11

Learning Objectives

• Students come to know What is a Production Possibilty Curve
• Significance of a PPC
• What is Oppurtunity cost
• What is Marginal Oppurtunity Cost
• Characteristics of the PPC

A very good morning students.

Hope you are understanding Micro Economics

I hope the last lesson taught was understood

We shall now shift our focus to :

• Production Possibility curve

Please make sure you understand it well. Though i will have a Google Meet class for this topic

Production Possibility Curve refers to graphical  representation of Possible combinations of two goods that can be produced with given resources and technology.

Remember in Economics we take only two goods because a graph has only two axes.so it is done for simplicity.

Assumptions of the Production Possibility Curve(PPC)

• Resources in an economy are fixed, but can be transferred from one use to another
• With the help of resources only two goods can be produced
• Resources are fully and effeciently utilised
• Resources are not equally efficient in production of both goods.So when resources are transferred from production of one good to another , the productivity decreases.
• The level of technology is assumed to be constant.

Dear boys try and understand the Production Possibility Schedule and Production Possibility Curve from the video link i have given below.(If you dont understand do not worry i will be explaining it in my google meet class).

Marginal Oppurtunity Cost(MOC) REFERS TO THE NUMBER OF UNITS OF A COMMODITY  SACRIFISED TO GAIN ONE ADDITIONAL UNIT OF ANOTHER GOOD.

In case of PPC , MOC is always increasing.

Mariginal Rate of Transformation(MRT) is the ratio of number of units of a commodity sacrifised to gain an additional unit of another commodity.

MRT= Change in units sacrifised/ Change in units gained.

Characteristics or Properties of PPC

• PPC always slopes downward : this is because in order to gain one additional unit of a commodity some units of the other commodity has to be sacrifised.
• PPC is concave Shaped: This is because of the increasing Marginal Oppurtunity cost.

Where an economy operates depends on how well the resources of the economy are used.:

1. Economy will operate on PPC only when resources are fully and efficiently utilised
2. Economy will operate at any point inside PPC if resources are not fully and efficiently utilised.
3. Economy cannot operate at any point outside PPC as it is unattainable with the available productive capacity.

Economy can either operate on PPC or inside PPC, known as ' Attainable Combinations'

But ,economy cannot operate outside PPC, known as 'Unattainable Combinations'

PPC can be a straight line we assume that MRT OR MOC is constant.

PPC can be convex to the origin if MRT is decreasing.

There can be a shift or a rotation  in the PPC:

• Shift in PPC: It will shift when there is change in productive capacity( resources or technology) with respect to both goods
• Rotation of PPC: It will rotate when there is change in productive capacity( resources or technology ) with respect to only one good

Rightward shift in PPC can take place when there is advancement in technology or resourceswith respect to both goods.Example- If  there is an advancement in technology of making both goods that the economy is producing.

There will be a leftward shift in PPC when there is technological degradation or decrease in resources with respect to both goods.Example- If there is a degradation in technology in producing both goods that the economy is producing.

To understand the topic better we will be having a Google meet class tomorrow

Please go through the video link given below to ubderstand the topic better

https://www.youtube.com/watch?v=13PvaFRxFrI&t=1162s