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• PRODUCTION POSSIBILITY CURVE EXAMPLES HOW TO

Plot your first point by calculating the maximum amount you can produce of one item if you devoted all of your resources to it.

PRODUCTION POSSIBILITY CURVE EXAMPLES HOW TO

Related: What Is a Line Graph? Definition and How To Create One 3. For example, instead of listing one axis as tomatoes, you can write it as pounds of tomatoes. In addition, you can label the axis by the name of the item or get more specific and include the unit of measurement. It doesn't matter which item goes on which axis. Then place one item on each axis and label it. Label the axesĬreate your graph by drawing two lines that meet at a right angle. Related: How To Understand Graphs: Types, Uses and Tips 2. It's helpful to have this information either written on paper or in a digital spreadsheet in front of you to make graphing your production possibilities curve easier. This includes the two items you want to compare and the resources needed for each. Gather your informationĬompile the information you want to graph. To create a production possibilities curve, you can follow these steps: 1. Read more: The Production Possibility Curve Defined How to create a production possibilities curve The farmer needs to find a point on the curve where they are using their resources well but also maximizing the benefits. However, this doesn't account for cucumbers generating a slightly higher profit. It's important to note that the production possibilities curve only represents the number of goods you can produce if you're using your resources optimally, meaning it cannot tell you how many you should produce.įor example, a farmer's optimal use of resources might lie at 50 tomatoes and 25 cucumbers. It also illustrates if the current resource usage is less than optimal if the current production falls underneath the production possibilities curve. Additionally, the PPC can help find the point where a business can optimize its resource use. Importance of the production possibilities curveīusiness leaders and economists use the production possibilities curve to help them make production decisions because when two products share a finite resource. It’s also worth noting that production possibility curves are usually decreasing and concave down to represent the finite outcomes that result from finite resource usage.

It consists of several points to indicate the ideal production for a company. Related: Understanding Economics: Indicators, Types and Why Economists Are Important What does a production possibilities curve look like?Ī production possibilities curve is a smooth curve that resides in the positive portion of a graph. Since there is a shared resource between the two items, the graph ends up in the shape of a curve. They continue this exercise until they are down to 0 tomatoes and 50 cucumbers, then draw a line connecting the dots on the graph. After graphing these two points, the farmer calculates how many cucumber plants they could grow if they grew 90 tomatoes instead of 100. For example, a farmer has enough space for either 100 tomato plants or 50 cucumber plants. You calculate other points, based on removing some resources from one product and shifting it to the other. Calculating this amount for both items then gives you the endpoints of your curve. The maximum amount for each item is the amount you can produce if you devote all resources to that one item and zero to the other. You display the potential outputs of each item on the two axes of the graph. Production possibilities curves work by illustrating on a graph the product possibilities frontier.

Related: What Is the Production Possibilities Frontier (PPF)? How a production possibilities curve works With a production possibilities curve, the government can find the point where it would spend its resources most efficiently. Since devoting resources to one program means there are fewer resources available for the other, the government which program it wants to fund more. It wants to fund two programs with its resources, education and public health. Also known as the production possibilities frontier, the PPC measures the maximum output of two goods based on a fixed amount of input.įor example, the government has a fixed amount of resources in the form of taxes.

It helps illustrate the tradeoff between using more resources in one product over another. The production possibilities curve (PPC) is a graphical representation of the different amounts of a product that a business or economy can produce based on a shared resource. What is the production possibilities curve?