A Level Economics
A Level Economics:
Movements along the Production Possibilities Curve
Notes from the video ‘Diffusion| A Level Economics |Movement along the Production Possibilities Curve‘:
In the previous video, An Introduction to the Production Possibilities Curve, we covered the basics of the production possibility curve.
In this short video, we would elaborate on what happens when there is a movement along the production possibility curve.
Let’s recap on the definition of Production Possibilities Curve:
The Production Possibilities Curve (PPC) shows all the possible combinations of two goods that can be produced in the economy when resources are fully and efficiently employed, given the state of technology, assuming the economy can only produce the two goods.
From this definition, we can see that the Production Possibilities Curve can be used to examine choices in the production of two goods.
To make things clearer, we will illustrate this with the example we used previously.
Tom is a hardworking farmer who owns a small plot of land which can be used to plant oranges and apples.
We went ahead to create some choices Tom could have made on the number of oranges and apples to plant.
If we were to plot them on the graph, it would look something like this.
This is the Production Possibilities Curve for oranges and apples Tom can plant in a year.
The points along the curve reflects the choices Tom can make in producing the oranges and apples if he utilises all his resources efficiently.
Let’s look at the choices A and C.
At A, Tom focuses all his resources (manpower, land, money to buy the seeds) to plant oranges and is able to plant 200 oranges.
What happens when Tom chooses choice C – to plant 120 oranges and 75 apples – instead?
There is a shift of factors of production (time, land, money to buy the seeds etc.) to produce apples.
The increase in resources dedicated to producing apples results in:
1. An opportunity cost – Tom gets to plant less oranges (80 oranges)
2. An increase in production in the other good, apples – Tom gets to plant more apples (75 apples)
It is important to note that the production possibilities curve does not tell us where on the curve a particular economy will operate. Instead, it lays out the possibilities facing the economy.
It is the market equilibrium that tells us what, how, and for whom the goods should be produced.