Likewise, to produce product B as many as 1,000 units, we cannot produce product A. Because companies divert more resources to produce product B, it reduces the production of product A.įor example, from the graph above, when we decide to produce as many as 1,400 units of product A, we cannot produce product B. The slope of the curve represents the sacrifice between producing product A or product B. That’s because we maximize the use of resources. You can see, 600 units of product A and 800 units of product B is ideal (efficient). Imagine if the graph is three dimensions or four dimensions? But, like other economic models such as supply-demand, describing them in a two-dimensional graph makes it easy for us to understand the basic concept. You think, various combinations of goods we should be able to produce with existing resources.

You might have thought that the graphics are unrealistic in the real world. Economists describe it in a two-dimensional graph, where each axis represents the amount of output of each item. That applies both at the micro (company) and macro (economic) level. The production possibility curve represents the maximum number of output combinations that we can produce by maximizing the use of existing resources. Definition of production possibilities curve And we must choose which output we should produce and how much. Not all goods can be produced with available resources. Efficiency is important because we face limited resources. It does not store any personal data.The production possibility curve shows you the point of production efficiency. The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. The cookie is used to store the user consent for the cookies in the category 'Performance'. This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category 'Other. The cookies is used to store the user consent for the cookies in the category 'Necessary'. The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category 'Functional'. The cookie is used to store the user consent for the cookies in the category 'Analytics'. These cookies ensure basic functionalities and security features of the website, anonymously. Necessary cookies are absolutely essential for the website to function properly. As we move from A to F, we sacrifice increasing amounts of cotton. At B, the economy can produce 14,000 quintals of wheat and 1000 quintals of cotton.Īt C the production possibilities are 12,000 quintals of wheat and 200u quintals of cotton, as we move from A to F, we give up some units of wheat for some units of cotton For instance, moving from A to B, we sacrifice 1000 quintals of wheat to produce 1000 quintals of cotton, and so on. These are the two extremes represented by A and F and in between them are the situations represented by B, C, D and E. If, on the other hand, all available resources are utilized for the production of cotton, 5000 quintals are produced. It all available resources are employed for the production of wheat, 15,000 quintals of it can be produced. The following table gives the various production possibilities. We suppose that the productive resources are being fully utilized and there is no change in technology. Let us suppose that the economy can produce two commodities, cotton and wheat.

Production possibility curve