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Production Possibilities Curve

Definition

The production possibilities curve (PPC) represents the different combinations of two goods that an economy can produce given its resources and technology. It shows the trade-offs a society faces when allocating its limited resources between producing different goods.

Analogy

Imagine you have a limited budget to spend on clothes and electronics. The production possibilities curve is like a shopping list that shows all the possible combinations of clothes and electronics you can buy with your budget. It helps you understand the trade-offs you need to make in order to maximize your purchases.

Related terms

Opportunity Cost: The opportunity cost refers to the value of the next best alternative foregone when making a choice. For example, if an economy decides to produce more cars, it must give up producing some other goods, such as computers.

Efficiency: Efficiency means using resources in the best possible way to maximize output. On the production possibilities curve, points on the curve represent efficient use of resources, while points inside or outside the curve represent inefficiency.

Economic Growth: Economic growth refers to an increase in an economy's ability to produce goods and services over time. It is represented by an outward shift of the production possibilities curve, indicating that more goods can be produced with existing resources and technology.