Tuesday, February 9, 2010

Concept of production possibility curve

Human wants unlimited,where the means to satisfy those wants are limited.This creates the fundamental economics problem of choosing and allocating scarce resources among competing uses.The production possibility curve of frontier is a tool used to illustrate and explain the problem of scarcity and choice.This problem of choice was illuminated by Paul.A. Samuelson for the first time in terms of production possibility curve (PPC).
In the words of David Begg and other -"The production possibility curve (PPC) shows the maximum combination of output that the economy can produce using all available resources.
Similarly,according to Richard G.Lipsey and Colin Harbury,"The production possibility curve is a graphic expression of all the combination of goods and service that ca be produced when all resources are fully and efficiently employed.
The production possibility curve is based on following assumption :
  1. Two goods :Only two goods (food and shoe) are produced in the economy.
  2. Full employment :There is full employment of resources.
  3. Supply of factor :The supply of factor is fixed,but can be reallocated in the production of two goods within limit.
  4. Production technique :The production technique is given and constant in the low of diminishing return operates.
  5. Time period :The time period is short.

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