Factors of production are the basic resources used in the production proses in order to produce economic goods or services
Production Possibilities Curve (PPC)
Purpose to using PPC is;
-To undestand the concept of scarcity and constrained choice.
-To emphasize the distinction between movements along PPC and shifts the PPC
-To show the concept of opportunity cost using the PPC model.
Assumptions to build the PPC;
-Only two goods will be produce
-The production of technology is available and
not changes
-Limited factor of production
-Economy has achieved level of full employment
Attainable and unattainable combination
i) Attainable and efficient combination
Attainable where resources are fully utilized and the country said to be at full employment level. The firm is also to be efficient (no waste in the use of resources)
ii) Attainable but not efficient combination
Combination inside the PPC is attainable because it can be produced, but the economy not efficient and the resources are not fully utilized (unemployment exist)
iii) Not attainable combination
Combination outside the PPC is not attainable because it situated outside the PPC. It cannot producing cause not enough of resources and no new technology.
iv) Extreme combination
Extreme combination is combination can be produced and it efficient but all resources will use for produce only one goods.
Change in production possibilities curve
Due to several factors PPC can increase or decrease. It occur for one side only, or both.
a) Increasing in population
.png)
Manufacturers will increase the volume of goods when there is increasing of population. Production of both goods will increase. This cause PPC shift to right.
b) Technology progress
The factor can shift the PPC outward through an improvement of technology. Based on diagram above, technology happened only in producing books, the economy will produce more books than wagons. So, the PPC will shifted right.