Production possibility curve shows opportunity cost
It should be noted that in Figure.6 as a result of low rate of capital hill climb racing game for corby 2 formation, production possibility curve shifts outward at a relatively low speed.
This opportunity cost remains the 7 data recovery key generator same even at the other extreme, where increasing the production of Brand A from 12,000 to 15,000 bottles still requires that of Brand B to be decreased by 3000 bottles.
The working of the economy below the production possibility curve indicates that less than maximum possible production is being chaos head sub indo episode 4 done which will lower the welfare and standards of living of the people.Again, our movement from alternative B to C involves the sacrifice of two thousand quintals of wheat for the sake of one thousand more metres of cloth.We have explained above economic growth which has been brought about by capital formation.It has, therefore, to be decided which goods are to be produced more and which ones less.The problem of resource allocation involves what and how the goods will be produced.1.2., where the economy can produce more of both the goods or more of either of the two goods (as indicated by arrows) by putting the unemployed resources to work.Since the accumulation of capital raises the productive capacity, national production will increase, that is, economic growth will take place.But the above conclusion is based on the assumption that the economy is using its resources fully and most efficiently and is operating at a point on the production possibility curve.In this example, some factors of production are suited to producing both wine and grain, but as the production of one of these commodities increases, resources better suited to production of the other must be diverted.That means that economy is working at the level of full-employment and achieving maximum possible production.Economic Growth and Shift in Production Possibility Curve : Let us turn to the question of economic growth and see what happens to the production possibility curve when the economys productive capacity increases over time.Further suppose that this technique could not be applied to grain production.We also presume that technology does not undergo any change.But, as has been explained above, if the economy is utilising its resources fully, the rate of capital formation cannot be increased without the reduction in consumption.Production possibility curve is also called the production possibility frontier.As we move further from C to D, D to and E to F, the sacrifice in terms of wheat which we have to make for having extra one thousand metres of cloth goes on increasing.Production possibility frontier or curve is an important concept of modern economics.On production possibility curve PP, the economy can produce more goods than on curve.The opportunity cost of a commodity means the amount of a next best commodity foregone for producing an extra unit of the commodity.Advertisements: All these assumptions imply that we are looking at our economy at some particular point in time or over a very short period of time.1.2, if the economy is working at U, then by using its idle resources fully and most efficiently, it can move from U to Q1, or to R, or to S on the production possibility curve.
In the above diagram, the new technique results in wine production that is double its previous level for any level of grain production.
It is therefore; clear that in a fully employed economy more of one good can be obtained only by cutting down the production of another good.