Factors That Shift the Ppc Essay

Custom Student Mr. Teacher ENG 1001-04 5 January 2017

Factors That Shift the Ppc

In economics, the Production Possibility Curve (PPC) is based under the field of macroeconomics. The production possibility curve (PPC) is also termed as the production possibility frontier (PPF), a production possibility boundary or sometimes called product transformation curve. It is defined as a curve that illustrates the possibility of producing two goods or services within a specified time with all the resources given such as (labour, land, capital and the technical knowledge).

As we can see, here is an example of how the (PPC) looks like, a graph that compares between the productions rates of thetwo goods or services by mapping the production of one good on the x-axis and the production of the other good on the y-axis. It also illustrates the highest level of production that a country or a firmcan afford and the economy is allocating its resources the best way possible. POINTS ON THE PRODUCTION POSSIBILITY CURVE.

The line connecting Points A and B is the productivity curve which separates the attainable from the unattainable. Points along the curve are said to be efficient and are the best possible combinations of resources to enable full utilization and to ensure that the country is at a full employment. All the points shown above on the production possibility curve (PPC)have an indication sign such as, points A and B are choices and the higher level of production. Point C is attainable but it shows waste of resources and inefficiency since the production has not reached its maximum level. Point D at this point due to limited resources and technology, the country or firm is unable to reach the production, whereas all the points outside the PPC are unattainable. All points on a production possibility curve are points of maximum productive efficiency or minimum productive inefficiency.

THE THREE MAIN ECONOMICS CONCEPTS USING THE (PPC) ARE: SCARCITY, OPPORTUNITY COST AND CHOICE. SCARCITY.

One of the main important concepts in economics is scarcity. It means the state of being scarce or in short supply. Scarcity is the fundamental problem and it can be explained as a nation or society are always having unlimited wants to fulfill or satisfy their needs in a world of limited amount of resources of factors of production.

As we can see here is an example of the graph that illustrates point A as scarcity which is unattainable or above the limits of the resources given and that the same resources cannot be utilized to different goods (Product A and B) at the same time. We live in a big, bad world of scarcity. This big, bad world of scarcity is what the study of economics is all about. That’s why we basically subtitle scarcity under The Economics Problem.

CHOICE.

Choice can be explained as an economy has to decide how to use its scarce resources to attain the maximum possible satisfaction of the member of the society. The economic actors (producer, consumer and government) have to make knowledgeable choices in the use of the available resources therefore, all economists are decision makers.

Making a choice normally involves a trade-off – in simple terms, choosing more of one thing means giving up something else in exchange. Because wants are unlimited but resources are finite, choice is an unavoidable issue in economics.

OPPORTUNITY COST.

Opportunity cost measures the cost of any choice in terms of the next best alternative foregone. In other words, though we have alternative uses for resources, we have to select the best way to use these resources. When we choose best alternative, the next best alternative which is left out is known as the Opportunity cost of making a choice. In other words, the benefits we lost and could have achieved from the next best alternative.

Example of opportunity cost in production:-

Opportunity costs may be assessed in the decision-making process of production. If the workers on a farm can produce either one million pounds of wheat or two million pounds of barley, then the opportunity cost of producing one pound of wheat is the two pounds of barley forgone (assuming the production possibilities frontier is linear. Firms would make rational decisions by weighing the sacrifices involved.

SHAPES OF THE PRODUCTION POSSIBILITY CURVE:

The shape of the production possibility curve (PPC) depends on the opportunity cost. Increasing opportunity costs means the cost of the country producing more of one product and sacrificing or decreasing the production of another product.

The production possibility curve is concave due to increasing the opportunity cost and slopes from left to right.

The production possibility curve can also be convex due to decreasing opportunity cost as it slopes from upwards to downwards.

When the opportunity cost is constant, the production possibility curve tends to be linear as it slopes from upwards to downwards.

FACTORS THAT EFFECT THE SHIFT OF THE PPC:

The production possibility frontier will shift outward if there is increased productivity in the factors of production. If the productivity of the factors of production improves then the production possibility curve will shift outwards as follows: The other factors that will cause the possibility production curve to shift is the improvement of technology, the curve will shift outward if there is an improvement in the technology in the economy. The discovery and exploitation of resources in the economy will also cause a shift in the production possibility curve, if there is a discovery and the exploitation of resources that are used in the production of goods and services then the curve will shift outwards.

Effects of producing more goods for the future to the PPC: When an economy produces more goods then it is possible to achieve the point where the economy utilises all its factors of production and the point of production will be at along the curve, the excess production of goods and services will also tend to influence producers to explore new resources for production and this will lead to a shift in the curve to a higher level. The production possibility curve depicts the total number of goods and services that can be produced in an economy given the level of resources in the economy, the productions possibility curve helps check whether an economy has idle resources and if an economy produces optimally then this will result into economic growth.

There are factors that lead to a shift in the production possibility curve, this includes changes in technology, change in the productivity of factors of production and increased efficiency and finally the curve will shift as a result of increased resources in the economy.If an economy produces more goods then it achieve the point where the economy utilises all its factors of production and the point of production will be at along the curve, the excess production of goods and services will also tend to influence producers to explore new resources for production and this will lead to a shift in the curve to a higher level.

Conclusion:

Factors that effects PPC shift is:
* Economic growth or disaster.
* Increase or decrease of resources.
* Technological changes.

Economic growth:
A source of economic growth is accumulation of capital and technological advances. PPC will shift outwards to the right.
Disaster:
A shift inwards is to the left.

Increase in resources:
PPC shift to the right
Decrease in resources @ loss:
PPC shift to the left.

Improvement in technology:
New innovations or improved techniques.
PPC shift outwards.

References:

1. www.wikipedia.com
2. www.investopedia.com
3. http://www.eia.gov/oiaf/servicerpt/eppats/ppusm.html
4. http://glossary.econguru.com/economic-terms
5. STANLAKE’S: INTRODUCTORY ECONOMICS.

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