Production Possibility Curve

Will an economy always operate on PPF?

No. A PPC curve does not always show the point at which the economy will operate. It only shows the possible combinations which can be produced. The operation point depends on the efficiency to which the resources are used.

When will an economy operate on PPC?

An economy will operate on PPC in the following cases:

• An economy will operate on PPC (Attainable Combinations) only when the resources are fully and efficiently utilized.
• It will operate at any point inside the PPC (Attainable Combinations) in case resources are not fully and efficiently utilized.

However, an economy cannot operate at any point outside the PPC (Unattainable Combinations) as it is not possible to attain them with the available resources.

What do you mean by Attainable Combinations?

Attainable Combinations are the ones at which an economy can operate. There are two attainable options:

1. Optimum Utilization of Resources: If the resources are used in the best possible manner, then the economy will operate at any point lying on the PPC Curve.
2. Inefficient Utilization of Resources: If the resources are not fully utilized or are wasted, then the economy will operate at any point inside the PPC Curve.

What do you mean by Unattainable Combinations?

It is impossible for an economy to produce more than the given possible combinations of two goods, with the available resources. Therefore, unattainable combonations are the points outside the PPC Curve on which an economy can never operate.

Can PPC be a straight line?

Yes, PPC can be a straight line if MRT is assumed to be constant. Constant MRT means that to gain additional unit of a commodity, same unit of another commodity is sacrificed. It can only be possible if it is assumed that all resources are equally efficient for the production of all goods.

Can PPC be convex to origin?

Yes. PPC can be convex to origin if MRT is assumed to be decreasing. Decreasing MRT means that to gain additional unit of a commodity, less unit of another commodity is sacrificed.

As the resources available around us are scarce, we cannot satisfy all of our needs and wants. And even if all the resources in the economy are utilized in the best possible manner, their capabilities are restricted due to scarce resources. Therefore, we are forced to make economic decisions and choose among alternate goods and services to satisfy our wants in the best possible manner. Hence, society has to decide what to produce out of the infinite possibilities. The graphical presentation of this range of possibilities is known as Production Possibility Curve (PPC) or Production Possibility Frontier (PPF).