INTRODUCTION TO

MICROECONOMICS
ECO099 SEM NOV 2011

CHAPTER 1
ADDITIONAL NOTE
PRODUCTION POSSIBILITIES
CURVE

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ALAM

Production Possibilities Curve (PPC)

Def of PPC:
the boundary between those combinations of
goods and services that can be produced and
those that cannot;
a curve that shows maximum combination of
G&S using limited resources.
Assumptions:
full employment
Two goods Consumption vs Investment
Techno unchanged
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Production Possibilities and

Concepts
a) Scarcity : outside curve, limited
resources;
b)Choices : points on curve,
maximize satisfactions, limited
resources, efficient level;
c) Opportunity cost: forgone, impact
of decision, tradeof

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Production Possibilities and

Opportunity Cost

Value of opportunity cost

determine shape of PPC:
a) Increasing OC concave PPC
b)Decreasing OC convex PPC
c) Constant OC linear PPC

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Production Possibilities and

Economic Growth
Movement of PPC is known as shifting,
Shift to right known as expansion
Shift to left known as contraction

The expansion -> increase in the standard of living> called

economic growth.
The opportunity cost of economic growth is less current consumption.
Three key factors influence economic growth:
Resources and capital accumulation
Technological change
Population

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