ECONOMICS PROJECT (2017-2018)

“Production Possibility

Curve”

GUIDED BY: MADE BY:

MRS.SHOBHA PRAJAPATI NIRAJ KUMAR PANDA
(PGT ECONOMICS) 12TH C
Roll no. 1708511

CERTIFICATE
This is to certify that master NIRAJ

KUMAR PANDA of class 12 C has

completed his ECONOMICS project on the

topic PRODUCTION POSSIBILITY CURVE

(PPC) during the academic year 2017-2018.

Mrs. Shobha Prajapati Mrs. Neelam Malviya External
( P.G.T.ECONOMICS) (PRINCIPAL) CBSE

{K V No.2 INDORE}
I feel highly privileged & honored in making the project
report on PRODUCTION POSSIBILITY CURVE
(PPC).
I express my sincere gratitude to our teachers, parents,
and all our friends for their kind cooperation for preparing
this project. My special thanks to our guide, our mentor
Mrs. Shobha Prajapati for her continuous support &
encouragement that led to the development of this
material. I would also like to thank our Principal
Mrs. Neelam Malviya madam for her caring &
encouraging attitude towards us.
I am highly grateful to all government officers and
Principals of different schools who have helped us to
prepare this project.
I look forward to receive valuable suggestions from
teachers, students and viewers also.

Thank You
 Niraj Kumar (12th Commerce)

1. Introduction.
2. Assumptions.
3. Objectives of PPC.
4. Slope of PPC.
5. Properties of PPC.
6. Shapes of PPC.
7. Shifts of PPC.
8. Rotation of PPC.
9. Solutions of Central Problems by PPC.
10. Combinations on PPC.
11. Conclusion.
12. Bibliography.
A Production Possibility Curve (PPC) or Production Possibility
Frontier (PPF) shows the graphical presentation of various
combination of two goods that can be produced with
available technologies and given resources.

In the context of the diagram: a point on the frontier

indicates efficient use of the available inputs (such as A, B
and C in the graph), a point beneath the curve (such as X)
indicates inefficiency, and a point beyond the curve
(such as Y) indicates impossibility.

1. The resources available are fixed.

2. The technology remains unchanged.

3. The resources are fully employed.

4. The resources are efficiently employed.

5. The resources are not equally efficient in

production of all products. Thus, if resources

are transferred from production of one good to
another, the cost increases. In other words,
marginal opportunity cost increases.
 Effectiveness: Goods to fulfill customer’s needs.
 Maximizing output: Maximum output with
minimum input.

 Quality control: Product/service quality meets

planned quality specifications.

 Minimize the time: Conversion of raw material to

finished goods in minimum time.

 Maximize profit: Minimize cost.

Marginal opportunity cost (MOC) / Marginal rate of
transformation (MRT) is the slope of PPC (Production
Possibility Curve). In other words, shape of PPC depends on
MOC / MRT.

MOC is the loss of output of output of one

commodity (say Y) when a unit more of other commodity

(say X) is produced by shifting resources from one good to
the other (from Y to X). It is also rate of sacrifice.

MRT is the rate at which the units of output of one good

are sacrificed to produce one more unit of the other good.

 𝑈𝑛𝑖𝑡𝑠 𝑜𝑓 𝑜𝑛𝑒 𝑔𝑜𝑜𝑑 𝑠𝑎𝑐𝑟𝑖𝑓𝑖𝑒𝑑 ∆𝑌
MOC / MRT = =
𝑈𝑛𝑖𝑡𝑠 𝑜𝑓 𝑜𝑡ℎ𝑒𝑟 𝑔𝑜𝑜𝑑 𝑔𝑎𝑖𝑛𝑒𝑑 ∆𝑋

CombinationsProduction ProductionMOC/MRT
Or Of Good X of Good Y ( 𝑳𝒐𝒔𝒔 )
𝑮𝒂𝒊𝒏
Possibility (Bread) (Drill
presses)
A 0 10 -
1
B 1 9 1
=1
2
C 2 7 1
=2
3
D 3 4 1
=3
4
E 4 0 1
=4

In order to produce an additional unit of X, the producer has

to sacrifice some units of Y. For example, if he wants to
produce 2 units of bread, he will have to sacrifice 2 units of
drill presses, or MOC is 2 units.
I. Concave to Origin:-
PPC curve is concave to the origin. This is because of the
increasing opportunity cost.

II. Increasing Marginal Rate of Transformation :-

 The slope of PPC shows, for the production of every
additional unit of one good, more and more units of
other good has to be sacrificed.
III. Downward Sloping:-
PPC curve is downward sloping as more production of
one good is associated with decline in production of the
other good.
IV. Optimum utilization of resources :-
The points that lie on the PPC are associated with full
employment of resources and efficient utilization of the
available technology.

Production Possibility Curve (PPC) can have three shapes:

1. Concave:-
It is due to increasing MOC. It means that in order to produce
more units of X, more units of Y are sacrificed or rate of
sacrifice increases. It is due to application of law of
diminishing returns.

2. Convex:-
Convex PPC is due to decreasing MOC. It means that in order
to produce more units of commodity X, less units of
commodity Y are sacrificed. This is because of application of
law of increasing returns.
3. Straight :-
It is due to constant MOC. It means that in order to produce
more units of commodity X (Clothes), same units of good Y
(Food) are sacrificed remains constant. This is because of
application of law of constant returns.
1. Rightward shift of PPC :-
The PPC will shift to the right when there is
 Economic growth.
 Increase in resources.
 Technological change.

2. Leftward shift of PPC :-

The PPC will shift to its left due to

 Economic disaster.
 Decrease in resources.
  Technological change.

1. Change in commodity on X-axis:-

  If there is increase in resources or technological
improvement for good (on X axis), then PPC will rotate
from AB to AC (rightward).
 If there is decrease in resources or degradation of
technology for good (on X axis), the PPC will rotate from
AB to AD (leftward).

2. Change in commodity on Y-axis :-

 If there is increase in resources or advancement in
technology for gun (on Y-axis), PPC will rotate to its
right from AB to CB.
  If there is decrease in resources or degradation in
technology for guns (on Y-axis), PPC will rotate to its left
from AE to DE.

1. What to produce:-
Due to scarcity of resources, an economy has to decide
allocation of its resources towards the chosen goods as all
goods cannot be produced.
Let us assume that economy has decided to produce wheat
and cotton and also different options of choosing the
quantities of these two goods.

Possibilities Cotton (Units) Wheat (Units)

A 300 200

B 400 160

C 480 80

The problem of what to produce is the problem of choosing

between the points on PPC. So, through PPC economy can get
rid of the problem of what to produce.
If government wants to produce more cotton then
government had to opt point C. Similarly, if economy wants
more wheat then they will opt point A.

2. How to produce:-
This problem refers to choice of technique of production
whether labour intensive or capital intensive, so that efficient
use of scarce resources can be made.PPC helps to solve this
problem.
All points on PPC, represent fuller utilization of resources
implying use of efficient technique of production.

3. For Whom to produce:-

This problem relates to distribution of production/income
generation.
Goods and services produced along PPC would be distributed
among the consumers and National income generated
through production would be distributed among factors of
production.

Let A (2, 9) means 2 units of cotton and 9 units of wine are

produced along point ‘A’ on PPC. When this produce is sold
to consumers, it is personal distribution and when income
earned by sale of goods is distributed among factors of
production, it is functional distribution.
 Attainable/Feasible Combination
It refers to those combinations which can be produced
with the help of given resources and technology.
 Points on PPC and
 Points inside PPC.

 Unattainable/Non-Feasible Combination
It refers to those combinations which cannot be
produced with the help of given resources and
technology.
 Points outside PPC.
Scarce resources mean that the country can only produce
combinations of Good X and Good Y that are found on, or
within the PPC. Points A, B, C and D are attainable.

However, points outside the PPC (point E and F) are

unattainable. The limited resources mean that unlimited
wants and needs of the country cannot be fulfilled.
In order to answer this question, we have to clearly
understand what a Production Possibility Curve is. From a
microeconomic point of view, “the production possibility
frontier represents the point at which an economy is most
efficiently producing its goods and services”. Therefore,
we can firmly state that a nation’s production possibility
frontier can shift both in the inward and outward
directions, depending on a situation going on in a specific
country. The possibilities curve illustrates the limits that
an economy has, which drives us to a conclusion that in
order to achieve efficiency, the proportion of produced
goods and services must be regulated and managed
correctly. PPC helps the government to use the limited
resources in an efficient manner. PPC saves resources as
well as money of government and public. That is why I
think that PPC is a very useful thing.
 Books:-
 Introductory Micro Economics – Radha Bahuguna.

 NCERT Class XII Micro Economics.

 Introductory Microeconomics – Sandeep Garg.

 Study Material Economics (KVS) 2017-18.

Internet:-
 Google – www. Google.co.in.

 PPC Wikipedia.

 www.cbseguide.com.in

Thank you
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