Production Possibilities Curve

The Production Possibilities Curve (PPC) shows the

graphical relationship of production between two products i.e. capital and consumer goods using limited resources. It shows the opportunity cost of a given product up against another product to illustrate the best product selection with the most benefits. The opportunity cost increases as we choose to produce more of a particular product.

In the PPC diagram Point G, inside the PPC, shows that resources are under-utilized and not efficiently used whereas Point H, beyond the curve, can be sustained only for short period of time. Advancements in technology push the PPC outward to PPC (A)  which shows that we can produce more products with same amount of resources such as combination Point B or D or any other possible point on Curve A. Technological improvements for both products shift the entire curve outwards.

Family income is a limited resource. Families try to allocate resources to fulfill their essential, everyday needs. They have to buy the basic necessities of life such as groceries and pay utility bills. Products such as HDTVs, computers, cars, cell phones and holidays as these all extend beyond the most basic needs. A decision process is often behind these purchases. For example: Do we need a holiday this year or can it be postponed till next year? Should we buy a car instead of using public transport? The choice is between two weeks of fun and relaxation or spending more than a couple of hours in transit every day. Ultimately, families must decide which expenditure is most beneficial to their lifestyle and needs.

For me personally, returning to higher education involved major decisions. The significant opportunity benefit to enrolling at SAIT is to further my career and job prospects in accounting. The opportunity costs to me are the tuition fees and time spent studying. Reduction in money and free time has resulted in sacrifices; this year I was unable to take a vacation. Ultimately, I think this was a great opportunity for me to go to college and study accounting, fulfilling a long-standing ambition.

Diagram source: Prentice Hall