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Economics IGCSEPDF 15
118 pagesrevision 46932
PDF 15
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A
indicates a change in the
meaning the maximum possible output of both goods has changed.
of the economy,
Location : On the PPC
Significance : Productive Efficiency
Interpretation : All resources are being used fully and efficiently to produce the
maximum possible output. These points represent the productive potential of the economy.
Location : Under the PPC (Inside the curve)
Significance : Productive Inefficiency
Interpretation : The economy is not using all of its available resources, or is using them
inefficiently (e.g., due to unemployment, underutilization of factory capacity). More of both goods
could be produced without giving up any of the other.
Location : Beyond the PPC (Outside the curve)
Significance : Unattainable
Interpretation : This combination of output cannot be achieved with the economy's
current resources and technology. It represents a production level that is currently impossible.
A
involves changing the production mix from one point on the curve
to another.
•
Such a movement illustrates opportunity cost, which is the value of the
next best alternative forgone.
•
When an economy moves along the PPC to produce more of one good (e.g.,
capital goods), it
give up some production of the other good (e.g., consumer goods),
because resources are finite (scarcity). The amount of the second good forgone is the
of the additional production of the first good.
•
The typically concave shape of the PPC shows increasing
. As production of a good increases, greater quantities of the other good must
be sacrificed for each additional unit. This occurs because resources are not perfectly adaptable
to the production of both goods (e.g., a farmer specializing in wheat might not be as efficient
when switched to car production).
SHIFTS IN A PPC
shift in the entirePPC
MOVEMENTS ALONG THE PPC
movement alongthe PPC
Opportunity Cost:
Trade-off:
must
opportunity cost
Increasing Opportunity Cost:
opportunity cost
productive potential