What do production possibility curves show

In figure 2, economic growth is portrayed as a shift in the curve outward. During any particular time period, a society cannot be outside of its production possibility curve, but over time the curve can shift, as resources expand as the labor force increases, for instance , and new technology is developed.

The new curve further from the origin indicates that more goods and services can be produced, and thus consumed. By definition this shift in the curve represents increased economic growth. The production possibility curve can be viewed as a useful tool to demonstrate the concepts of opportunity cost, and the law of increasing cost. It also protrays the underlying condition of scarcity and unlimited wants, that are paramount for neoclassical economics.

An economy will fall within the curve when it ignores its comparative advantage. For example, Florida has the ideal environment to grow oranges, and Oregon's climate is best for apples. Florida has a comparative advantage in orange production, and Oregon has one in apple production. If Florida ignored its advantage in oranges and tried to grow apples, it would create an inefficient use of resources.

The U. At the same time, any point outside the production possibilities curve is impossible. More of both goods cannot be produced with the limited resources. On the chart, that is point F. The production possibility curve bows outward. The highest point on the curve is when you only produce one good, on the y-axis, and zero of the other, on the x-axis.

On the chart, that is Point A, where the economy produces , apples and zero oranges. The widest point is when you produce none of the good on the y-axis, producing as much as possible of the good on the x-axis. On the chart, that is point D: The society produces zero apples and 40, oranges. All the points in between are a trade-off of some combination of the two goods. An economy operates more efficiently by producing that mix. The reason is that every resource is better suited to producing one good over another.

Some land is better suited for apples, while other land is best for oranges. Society does best when it directs the production of each resource toward its specialty. The more specialized the resources, the more bowed-out the production possibility curve. The curve does not tell decision-makers how much of each good the economy should produce; it only tells them how much of each good they must give up if they are to produce more of the other good.

It is up to them to decide where the sweet spot is. In a market economy , the law of demand determines how much of each good to produce. In a command economy , planners decide the most efficient point on the curve. So let's say Scenario D, if you reduce the amount of time you spend getting rabbits so you get 2 rabbits, now all of a sudden you have enough time on average to get berries. And then, let's say you spend even less time hunting for rabbits, on average.

Then you have even more time for berries. And so you're able to get to berries and I'll do one more scenario here. So let's say Scenario F-- and let's call these the scenarios. Scenarios A through F. So Scenario F is you spend all your time looking for berries.

In which case, on average, you're going to be able to get berries a day. But since you have no time for rabbits you aren't going to get any rabbits. So what I want to do is plot these. And on one axis I'll have the number of rabbits. And on the other axis I'll have the number of berries. So let me do it right over here.

So this axis, I will call this my rabbit axis, rabbits. And we'll start. That will be 0. And then this will be 1, 2, 3, 4, and then that will be 5 rabbits. And then in this axis I will do the berries. So this right over here, let's make this berries. This is berries. And then this is berries. And so this is my berries axis. Now let's plot these points, these different scenarios. So first we have Scenario A. Maybe I should've done all these colors in that Scenario A color.

Scenario A, 5 rabbits, 0 berries. We are right over there. That is Scenario A. Scenario B, 4 rabbits, berries. That's right over there. That's berries. So that is Scenario B. Scenario C, 3 rabbits, berries. Let's see this would be So 3, if you have time for 3 rabbits you have time for about berries on average. So this is Scenario C. And then Scenario D we have in white. If you have time for 2 rabbits, you have time for berries.

So that is right around there. There are differences between a budget constraint and a production possibilities frontier. A budget constraint model shows the purchase choices that an individual or society can make given a specific budget and specific purchase prices. The production possibilities frontier shows the possible combinations of two products or services that could potentially be produced by a society. Budgets and prices are more precise. For this reason, a PPF is not as precise. Consider the PPF graph above.

That said, you could probably think of ways to measure improvements in education, such as more years of school completed, fewer high-school dropouts, and higher scores on standardized tests. Similarly, you could probably measure improvements in health care according to things like longer life expectancy, lower levels of infant mortality, fewer outbreaks of disease, and so on.

These types of measures in a PPF are useful, but do not have the same level of accuracy as a budget constraint model. Whether or not we have actual numbers, conceptually we can measure the opportunity cost of additional education as society moves from point B to point C on the PPF. The additional education is measured by the horizontal distance between B and C.

The foregone health care is given by the vertical distance between B and C. This is the opportunity cost of the additional education. The budget constraints presented earlier in this module, showing individual choices about what quantities of goods to consume, were all straight lines. The reason for these straight lines was that the slope of the budget constraint was determined by the relative prices of the two goods in the budget constraint. However, the production possibilities frontier for health care and education was drawn as a curved line.