The Production possibility curve (PPC) is a curve that shows all maximum possible combinations of two goods and services which a country can produce using all available resources with efficient technique of production at a given state of technology.

Assumptions of PPC

  • Suppose there are only two goods produced in a country: Laptops and Phones.
  • Suppose the economy is working at full employment. All available resources are utilized to produce goods and services and quantity of resources is fixed.
  • Assume that country is using best available technique of production, i.e., Productive Efficiency (a situation where it is impossible to produce more of one good without sacrifice of other.)
  • Finally, it is assumed that state of technology will not change in the given time constraint.

The diagram below shows the production possibility curve of a country producing laptops and phones assuming that all available resources are fully employed in the most efficient way at present state of technology.

  • If all resources are allocated in Phones production the economy will be at point ‘A’
  • If all resources in Laptops production the economy will be at point ‘B’
  • A curve joining ‘A’ and ‘B’ is PPC as shown below

Points ‘A’ and ‘B’ may be joined by a straight line or an inward bending curve as shown below:

Hence, PPC may be of three shapes, i.e., outward bending, inward bending, or a straight line.

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