Production Possibilities Graphs

Unit 1: Production Possibilities Graphs (PPG, PPC, or PPF)

PPG

• alternate ways to use resources
• each point on the graph reflects a trade-off
• shows the most that society can produce if it uses every available resource to the best of its ability

• Point A:
• attainable, but inefficient
• underutilization
• inside of the curve
• reasons:
• unemployment
• underemployment
• depression / recession
• war
• famine
• Point D: 
• attainable & efficient
• efficiently producing both x & y (guns & butter)
• on the curve
• Point X:
• unattainable / unavailable with today's resources
• outside of the curve
• reasons:
• technology
• economic growth
• Point B:
• producing a lot of y, but less of x (more guns, less butter)
• Point C:
• producing a lot of x, but less of y (more butter, less guns)

Key Assumptions

1. full employment: all who are willing (and able) to work are employed
• 80-90% factory
• 4-5% unemployment
• reasons for lack of full employment:
• laziness
• early retirees (baby boomers)
• disabled people
2. productive efficiency
3. fixed resources
• land
• labor
• capital
4. fixed state of technology
5. no international trade
6. two goods produced