Unit 1: Production Possibilities Graph 1/4/17

PPG: Shows the alternative ways  to use an economy's resources
Efficiency: Using resources in such a way to maximize the production of goods and services. Increases profits.
Under utilization: Opposite of efficiency. Using fewer resources than an economy is capable of using. Leads to decreased profits.
Law of Increasing Opportunity Cost: When resources are shifted from making one good or service to another, the cost of producing a second item increases.

• Point D (on the curve)- Attainable & efficient
• Point A (inside the curve)- Attainable, but inefficient. Under utilization, unemployment or underemployment of resources.
• Point X (outside the curve)- Unattainable using current resources. Technology, Economic Growth.

Four Key Assumptions:

1. Only 2 goods can be produced

2. Full employment of resources

3. Fixed resources (factors of production)

4. Fixed Technology

Three types of movements that occur within the PPG:

   1. Inside the curve
 2. Along the PPC



 3. Shifts of the PPC

Two types of Efficiency

Productive Efficiency:

• Products are being produced in the least costly way
• This is any point ON the production possibilities curve

Allocative Efficiency:

• The products being produced are the ones most desired by society
• This optimal point on the PPC depends on the desires of society