<1.4 PPC>

--1.4.1 DEFINITION--

--THE PPC--

The PRODUCTION POSSIBILITY CURVE (PPC) (Also known as the PRODUCTION POSSIBILITY FRONTIER (PPF)), is a very basic economic model used to illustrate the economic concepts of FACTOR Of PRODUCTION, SCARCITY, CHOICE, and OPPORTUNITY COST.

Fleeing from a war-ravaged homeland a group of weary drifters landed on a deserted island in the middle of the Pacific Ocean. The island was covered in COCONUT trees and surrounded by beautiful FISH-filled seas.

Fleeing from a war-ravaged homeland a group of weary drifters landed on a deserted island in the middle of the Pacific Ocean. The island was covered in COCONUT trees and surrounded by beautiful FISH-filled seas.

Fleeing from a war-ravaged homeland a group of weary drifters landed on a deserted island in the middle of the Pacific Ocean. The island was covered in COCONUT trees and surrounded by beautiful FISH-filled seas.

From what we know so far can you IDENTIFY the FACTORS OF PRODUCTION for this new economy?

Chiefy now wants to know ALL the possible production combinations of coconuts and fish that the island can produce in one day if ALL 10 workers produce to their maximum assumed capabilities (CATCH 2 FISH or PICK 3 COCONUTS EACH). Complete the table below, and plot these combinations with Fish on the vertical axis and coconuts on the horizontal axis, then answer the following question:
1) "How many fishes and coconuts are produced if the resources are divided equally between both products?" (5 workers per activity)
2) "Explain how this model illustrates the concepts of 'CHOICE', 'OPPORTUNITY COST', and 'SCARCITY'.

--1.4.2 POINTS UNDER/ON/BEYOND PPC--

Now that you have a PPC drawn, indicate the following on your diagram from 'TASK 2',

--1.4.3 MOVEMENTS ALONG THE PPC--

MOVEMENTS ALONG the Production Possibility Curve (PPC) signify the TRADE OFF an economy faces when reallocating scarce productive resources between the production of two goods.
- - As we know this trade-off also indicates the OPPORTUNITY COST of any reallocation as when you move from one point to another along the PPC, producing more of one good requires sacrificing ('forgoing') the production of another. Hence this trade-off illustrates the opportunity cost.
  - In addition as all these points are on the PPC they must ALWAYS represent the EFFICIENT USE OF RESOURCES as any combination of goods on the PPC indicates that resources are being efficiently utilized and that the economy is OPERATING AT FULL CAPACITY, and to produce more of one good, the economy must reduce the production of the other.

Now that you have a PPC drawn, indicate the following on your diagram from 'TASK 2',

So far we have labelled our axes, 'GOOD X' and 'GOOD Y', however as all goods and services can generally be classified as either: 'CONSUMER GOODS/SERVICES' or 'CAPITAL GOODS/SERVICES' then these can also be used as labels.

--"Why is this important??"--

Well the PRODUCTION OF CONSUMER GOODS is assumed to LINK DIRECTLY to the CURRENT QUALITY OF LIFE enjoyed by the citizens of that economy as these products are used by individuals to satisfy their personal needs and wants e.g.: Smartphones, clothes, food, Haircuts, Netflix.
Conversely, the PRODUCTION OF CAPITAL GOODS is assumed to LINK DIRECTLY to the FUTURE ECONOMIC GROWTH POTENTIAL of the economy as these are used by businesses to produce other goods and services. They are not used for personal consumption e.g.: Machinery, tools, infrastructure, factory buildings etc...
--"So what can we conclude??"--
If an economy is devoting more resources to the production of CONSUMER GOODS and less to CAPITAL GOODS then we can say that "THE GENERAL STANDARD OF LIVING WILL RISING BUT FUTURE ECONOMIC GROWTH POTENTIAL MAY SUFFER' and vice versa"

--1.4.4 SHIFTS IN THE PPC--

SHIFTS in the Production Possibility Curve (PPC) signify CHANGES IN AN ECONOMY'S OVERALL CAPACITY TO PRODUCE GOODS AND SERVICES. These shifts indicate that the economy’s resources or technology have changed, impacting its ability to produce goods. There are two types of shifts:
- - - An OUTWARD SHIFT of the PPC represents ECONOMIC GROWTH. It indicates that the economy has increased its capacity to produce goods and services, either through the acquisition of more resources (like labor, capital, or land), improvements in technology, or better education and training. This implies that the economy can now produce more of both goods, reflecting an increase in overall economic potential and living standards.
    - An INWARD SHIFT of the PPC represents a reduction in the economy’s productive capacity. This could result from a loss of resources (due to natural disasters, wars, or depletion), technological setbacks, or declines in the workforce. This implies that the economy can now produce less of both goods, signaling a decrease in overall economic potential and a likely decline in living standards.

Now that you have a PPC drawn, indicate the following on your diagram from 'TASK 2',

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