# data[].attributes.attachment_link.title
Production Possibilities Curve- Macro Topic 1.2 (Micro Topic 1.3)

# data[].attributes.attachment_link.title
APMac and APMic Unit 1 Lesson 3 - Production Possibilities Curves and Circular Flow Diagram Flashcards | Quizlet

# data[].attributes.attachment_link.description
Start studying APMac and APMic Unit 1 Lesson 3 - Production Possibilities Curves and Circular Flow Diagram. Learn vocabulary, terms, and more with flashcards, games, and other study tools.

# data[].attributes.body
Define (using graphs as appropriate) the PPC and related terms.

Explain (using graphs as appropriate) how the PPC illustrates opportunity costs, tradeoffs, inefficiency, efficiency, and economic growth or contraction under various conditions.

Calculate (using data from PPCs or tables as appropriate) opportunity cost.

# data[].attributes.body
Most resources are scarce, and in most cases the use of resources involves constraints and trade-offs.

# data[].attributes.body
The PPC is a model used to show the trade-offs associated with allocating resources.

The PPC can be used to illustrate the concepts of scarcity, opportunity cost, efficiency, underutilized resources, and economic growth or contraction.

The shape of the PPC depends on whether opportunity costs are constant, increasing, or decreasing.

The PPC can shift due to changes in factors of production as well as changes in productivity/technology.

Economic growth results in an outward shift of the PPC.

# data[].attributes.body
1. What is a PP Curve? What does it represent?

2. What are the assumptions regarding a PP Curve?

3. What are the differences between a constant opportunity cost PP Curve and an increasing opportunity cost PP Curve?

4. Given data points, can you calculate the opportunity cost of a tradeoff on a PP Curve?

5. How does a PP Curve represent growth? What are the factors that will cause growth?

6. Graphically, what is the difference between a decrease in unemployment and an increase in productivity of a country?

# data[].attributes.attachment_link.readable_text
When consumers' income limits their consumption behaviors, this is known as a budget constraint. In other words, it's all of the many combinations of goods/services that consumers are able to purchase in light of their particular income as well as the current prices of these particular goods/services.

In the short term, budget constraints can be reduced through the use of loans; however, analyzing budget constraint, in the long run, reveals that it is primarily governed by income, rent, and other more long-term factors.

Budget constraint constitutes the primary part of the concept of utility maximization. This concept can be summed up in the following question: "What affordable set of goods/services will maximize my happiness?" The word "affordable," here, is linked to budget constraint. Meanwhile, "happiness" is linked to indifference curves.

A notable practical application of this concept is its use in the field of consumer theory, as a tool to examine the parameters of consumer choices.

# data[].attributes.attachment_link.title
Budget Constraint | Intelligent Economist

# data[].attributes.attachment_link.description
When consumers' income limits their consumption behaviors, this is known as a budget constraint. In other words, it's all of the many combinations of goods/services that consumers are able to purchase in light of their particular income as well as the current prices of these particular goods/services.

# data[].attributes.attachment_link.readable_text
Production Possibilities Frontier Definition

The best way to show a country's available resources, along with the maximum two goods produced from those resources, is by calculating the production possibilities frontier (PPF). Be aware that the "production possibilities curve" (PPC) is another way of referring to the production possibilities frontier, referring to the curve shown on a graph of the frontier-see below for an example of such a graph.

The production possibilities frontier shows the productive capabilities of a country. A production possibility curve even shows the ​basic economic problem​ of a country having limited resources, facing opportunity costs and scarcity in the economy. Selecting one alternative over another one is known as opportunity cost. Economists use PPF to illustrate the trade-offs that arise from scarcity.

The production possibilities frontier is a concept in the fields of both business analysis and macroeconomics. Within business analysis, the production possibility curve represents the various production levels of two goods requiring one resource that is available in a limited amount.

Meanwhile, within the field of macroeconomics, it's production possibilities frontier shows the situation in which a company is producing goods/services most efficiently to use resources the best possible way, in light of limited production capabilities. This allows the country's limited resources to be allocated most efficiently and completely.

Production Possibility Frontier Assumptions

One of the first and most important things to note is that economists often base their models off of key assumptions; such as "​ ceteris paribus ​," meaning all else remains the same or all other variables are kept constant. Economists do this in order to isolate a particular relationship, so that other variables do not obscure what they're attempting to discover.

In order to simplify the calculations, the production possibility frontier makes some assumptions that are not true in practice. These assumptions include the following: that the country only produces two goods, that it has a fixed amount of resources, and that it has a static level of technological development. Additionally, the PPF operates on the assumption that there are no inefficiencies interfering with output-that production is as efficient as it could possibly be; it also assumes that one commodity's production must decrease to allow the increased production of another commodity.

Production Possibilities Frontier Example

The production possibilities frontier is graphed as a curve, or arc. On such a graph, one of the commodities is shown on the x-axis, while the other is shown on the y-axis. The entirety of the curve is made up of points at which the two commodities are being produced in different amounts, most efficiently using the limited resources that they require.

The following graph shows the production possibilities frontier for a particular country's economy. It notes what the country ​can ​do, as opposed to what it actually does. In this example, the two commodities that that country produces are food (F) and clothes (C). (This is, of course, a highly simplified view of an economy, just for the purposes of understanding the production possibilities frontier.)

A shows the production level of clothes alone

B indicates the production level of food only

C is one possible combination of levels of production of both food and clothes (75F, 100C)

D is another combination of these production levels (50F, 150C)

E shows ​inefficient​ utilization of resources or unemployed resources, i.e. a case in which the output is less than what it has the potential to be

F shows an unattainable level of production, based on ​current​ resources

If the country wants to produce more food, they must produce fewer clothes, based on limited resource availability. Likewise, if they want to produce more clothes, they must produce less food. The government must assess the ​opportunity cost​ of producing more of one or the other. The graph above demonstrates this trade-off. If this country wants to increase the production of food from 50 to 75 units, this requires sacrificing the production of 50 units of clothes. And if this country wants to increase the production of clothes from 100 to 150 units, they must sacrifice the production of 25 units of food.

An outward shift of the production possibilities frontier is only possible if the country discovers new resources or there is an improvement in technological development. Furthermore, an inward shift is also possible. This can happen if there is a natural or human-made disaster, like a hurricane destroying a factory and machinery.

Production Possibilities Frontier Graph

Sometimes, the production possibility frontier does not look like a curve-instead, it's linear, meaning that it's simply a straight line. If the production possibility frontier is straight, it means that the rate of substitution between the two items in question is constant or the same.

Consequently, the resources saved by producing one less unit of food are just sufficient to allow the economy to produce the same added amount of clothes. This is constant regardless of how much of each item the country is currently producing. This consistent trade-off is known as "production under constant costs."

Prateek Agarwal's passion for economics began during his undergrad career at USC, where he studied economics and business. He started Intelligent Economist in 2011 as a way of teaching current and fellow students about the intricacies of the subject. Since then he has researched the field extensively and has published over 200 articles.

# data[].attributes.attachment_link.title
Production Possibilities Frontier | Intelligent Economist

# data[].attributes.attachment_link.description
The best way to show a country's available resources, along with the maximum two goods produced from those resources, is by calculating the production possibilities frontier (PPF). Be aware that the "production possibilities curve" (PPC) is another way of referring to the production possibilities frontier, referring to the curve shown on a graph of the frontier-see below for an example of such a graph.

# data[].attributes.body
St. Louis Fed

# data[].attributes.attachment_link.title
(1/3) The Production Possibilities Frontier – Economic Lowdown

# data[].attributes.body
St. Louis Fed

# data[].attributes.attachment_link.title
(2/3) The Production Possibilities Frontier – Economic Lowdown

# data[].attributes.body
St. Louis Fed -

# data[].attributes.attachment_link.title
(3/3) The Production Possibilities Frontier – Economic Lowdown

# data[].attributes.attachment_link.readable_text
What is the difference between Economic Growth and Development? We will start by defining Economic growth and development. It is possible to have economic growth without economic development.

Economic growth in an economy is by an outward shift in its Production Possibility Curve (PPC). Another way to define growth is the increase in a country's total output or Gross Domestic Product (GDP). It is the increase in a country's output.

A country's economic development is usually indicated by an increase in citizens' quality of life. 'Quality of life' is often measured using the Human Development Index, which is an economic model that considers intrinsic personal factors not considered in economic growth, such as literacy rates, life expectancy and poverty rates.

# data[].attributes.attachment_link.title
Economic Growth And Development | Intelligent Economist

# data[].attributes.attachment_link.description
What is the difference between Economic Growth and Development? We will start by defining Economic growth and development. It is possible to have economic growth without economic development. Economic growth in an economy is by an outward shift in its Production Possibility Curve (PPC).

# data[].attributes.attachment_link.readable_text
If you're seeing this message, it means we're having trouble loading external resources on our website.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

To log in and use all the features of Khan Academy, please enable JavaScript in your browser.

About this unit

In any economy, the existence of limited resources along with unlimited wants results in the need to make choices. In this unit, we introduce concepts of opportunity costs and trade-offs, and illustrate these concepts by using the production possibilities curve. We then consider how different types of economies determine which goods and services to produce, how to produce them, and to whom to distribute them. This unit also covers why and how specialization and exchange increase the total output of goods and services, with a discussion of absolute and comparative advantage. Finally, we touch on the importance of property rights, the role of incentives in the functioning of free markets, and the principle of marginal analysis.

AP® is a registered trademark of the College Board, which has not reviewed this resource.

# data[].attributes.attachment_link.title
Basic Economic Concepts | AP®︎/College Microeconomics | Khan Academy

# data[].attributes.attachment_link.description
In any economy, the existence of limited resources along with unlimited wants results in the need to make choices. In this unit, we introduce concepts of opportunity costs and trade-offs, and illustrate these concepts by using the production possibilities curve.

# data[].attributes.attachment_link.title
AP Microeconomics: 1.3 Production Possibilities Curve