Production Possibility Curve and its Properties

 Production Possibility Curve

• It is also known as the Production Possibility Frontier, Transformation line and Transformation curve.
• It shows different combinations of two goods which can be produced with given resources with an assumption that:
1. Resources are fully and efficiently utilized, and
2. Technique of production remain same
• A production possibilities curve in economics measures the maximum output of two goods using a fixed amount of input. The input is any combination of the four factors of production: natural resources (including land), labor, capital goods, and entrepreneurship. The manufacturing of most goods requires a mix of all four.
• The collection of all possible combinations of the goods and services that can be produced from a given amount of resources and a given stock of technological knowledge is called the production possibility set of the economy.
• Production possibility curve is based on the concept that there is always a cost of having a little more of one good in terms of the amount of the other good that has to be forgone.
• The production possibilities curve measures the trade-off between producing one good versus another.
• This is known as the opportunity cost of an additional unit of the goods.
• Every economy has to choose one of the many possibilities that it has.
• In other words, one of the central problems of the economy is to choose from one of the many production possibilities.

• E indicates that all resources are not fully utilized.
• F indicates that any point outside the curve is not attainable, which means more of both goods cannot be produced with existing resources.
• A indicates that more of Goods A are being produced and none of Goods B are produced.
• D indicates that none of Goods A are being produced and more of Goods B are produced. 

Properties of Production Possibility Curve

Production Possibility Curve has two basic properties:

1. It slopes downward
• It slopes downward from left to right.
• This is because, in the situation of fuller and efficient utilization of existing resources.
• Production of both the goods cannot be increased.
• More of Good-X can be produced only with less of Good-Y.
• Hence, the concept of opportunity cost is involved.
2. It is concave to the Point of Origin
• Since more good (Good-X) can be produced only if production of another good (Good-Y) is sacrificed.
• In other words, for every additional unit of Good-X, more and more of Good-Y needs to be sacrificed as additional opportunity cost.
• It means that the slope of Production Possibility Curve tends to rise
• Production Possibility Curve is concave to the origin because resources are used specific.
• Most of the allocated resources are already allotted to their specific usage.

Shifting of Production Possibility Curve

1. Resources are increased
• When there is advancement or upgradation of technology and increase of resources of both the goods.
• Causing more of both goods can be produced.
• Then, the Production Possibility Curve will shift to the right. 
• This indicates the increase in production of both the commodities.
  
  
  
2. Resource are decreased
• When there is degradation of technology and decrease of resources of both the goods.
• Causing less of both goods can be produced.
• Then, the Production Possibility Curve will shift to the left. 
• This indicates the decrease in production of both the commodities.