Change in PPC (Shift and Rotation)
One of the assumptions under PPC is fixed resources. However, if we consider the today’s changing environment, due to the increase or decrease in resources, the production capacity of an economy keeps on changing constantly. These changes results in a change in PPC. As the change in PPF curve shows either increase or decrease in the productive capacity of the economy, the change in PPC can be of two types; viz., Shift in PPC (change in productive capacity with respect to both goods) and Rotation in PPC (change in productive capacity with respect to one good only).
1. Shift in PPC:
When there is a change in resources or technology with respect to both goods, a PPC curve can shift either rightwards or leftwards.
i) Rightward Shift in PPC:
When there is advancement in technology or growth in resources, in respect to both goods, the PPC will shift in right direction. For example, if there is an advancement in agriculture technology for the production of Apples and Oranges, more of both goods can be produced. In such a case, the existing curve (PP) will shift to the right (P1P1).
ii) Leftward Shift in PPC:
When there is a degradation in technology or a decrease in resources, in respect to both goods, the PPC will shift in left direction. For example, if there is destruction of resources due to floods, the production of Apples and Oranges will reduce. In such case, the existing curve (PP) will shift to the left (P1P1).
2. Rotation of PPC:
When there is a change in resources or technology with respect to only one good, the PPC curve will rotate either for the commodity on X-axis or the commodity on Y-axis.
i) Rotation for commodity on X-axis:
When there is advancement in technology or growth in resources for the production of the commodity on X-axis (say, Orange as in above example), then the PPC will rotate from AB to AC; i.e., rightwards rotation. However, if there is degradation in technology or reduction in resources, the PPC will rotate from AB to AD; i.e., leftwards rotation.
ii) Rotation for commodity on Y-axis:
When there is advancement in technology or growth in resources for the production of the commodity on Y-axis (say, Apple as in above example), then the PPC will rotate from AB to CB; i.e., rightwards rotation. However, if there is degradation in technology or reduction in resources, the PPC will rotate from AB to DB; i.e., leftwards rotation.
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