# Production Possibilities Curve (PPC)

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## 1.1      Production Possibilities Curve

Production-possibilities curve (PPC) or “transformation curve” is a graph that shows the different rates of production of two goods that an individual or group (society) can efficiently produce with limited productive resources.

### 1.1.1 Assumptions of PPC

1. No resources are wasted
2. Technology is same

### 1.1.2 Illustration

• Lets consider the example of a person who is staying on an island and has to collect fruit or fish or a combination of both for this survival
• In option A, he is taking only 100 fruits and no fish… that means all his resources are spent in collecting fruits and he has no time for collecting fish.
• In option B, he opts to collect 1 fish, but for this 1 fish he will have to cut down his time on collecting fruits and he will lose 10 fruits.
• In option C, he opts to collect 2 fish and now his time for collecting fruit is even less; but now for this second fish he has to give up 20 fruits.

Why is opp. cost in terms of fruits is rising as more fish are collected

When 100% of resources were used to collect only fruits, more energy and resources are used in collecting later units as compared to initial units (law of diminishing returns). So when only 1 fish is collected, later units of fruits are lost which are not much; as we go on collecting more fish, initial units of fruits are also lost thus opportunity cost increases as more and more fish is collected.

### 1.1.3 Shift in Production Possibility Curve

When there is change in technology or resources, production possibility curve will shift to right or left depending on increases or decrease in the resources.

### 1.1.4 Production on a point inside Production Possibility Curve

When production is done at a point inside the PPC curve, it means resources are not fully utilized and there is lack of efficiency

### 1.1.4 Production on a point outside Production Possibility Curve

Any point outside PPC curve is not attainable, unless there is an improvement in technology / resources.