Assumptions of PPC
Production Possibility Curve is based on the following assumptions:
- Fixed Resources: The quantity and quality of resources available in the economy is assumed to be fixed. This includes factors of production such as labor, capital, land, and technology. However, one can transfer the resources from one use to another.
- Fixed Technology: The PPC assumes that the level of technology available for production remains constant. This means that the methods, processes, and efficiency of production do not change.
- Full Employment of Resources: The PPC assumes that all available resources in the economy are fully employed and utilized efficiently.
- Two Goods: The PPC assumes that with the given resources, only two goods can be produced.
- Unequal Efficiency in Production: Under PPC, it is assumed that the resources are not equally efficient in the production of all goods. Therefore, when the resources are transferred from one use to another (production of one good to another), the productivity declines.
Production Possibilities Curve (PPC) : Meaning, Assumptions, Properties and Example
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).
Table of Content
- What is Production Possibility Curve?
- Assumptions of PPC
- Example of Production Possibility Curve
- Properties of PPC
- PPC and Opportunity Cost
- Change in PPC (Shift and Rotation)
- Production Possibility Curve – FAQs