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Tutorial Topic: What is Production Possibility Curve, definition, example and Uses of production possibility curve.
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Production Possibility Curve Definition
Production Possibility Curve (PPC) is a curve that shows the alternative combinations of two goods and services by using all the available factor resources, efficiently.
In economics, the Production Possibility Curve provides an overview of the maximum output of a good that can be produced in an economy by using available resources with respect to quantities of other goods produced. It is also known as Production Possibility Frontier (PPF) or transformation curve.
Uses of Production Possibility Curve
Let us discuss some important uses of PPC as follows:
- It enables the planning authority of a developed nation to divert the usage of its resources for the production of necessary goods to the production of luxury goods and from consumer goods to producer’s goods, after a certain point of time.
- It helps a democratic nation to focus and shift a major amount of resources in the production of public sector goods instead of private sector goods. The public sector goods are supplied and financed by government, such as public utilities, free education and medical facilities. These goods are free or involve a negligible cost. On the other hand, private sector goods are manufactured by privately owned organisations and are purchased by individuals at a certain price.
- It helps in guiding the movement of resources from producer goods to capital goods, such as machines, which, in turn, increases the productive resources of a country for achieving a high production level.