Production possibility frontier (PPF)/ production
possibility curve (PPC)
1. It is basically a curve that shows the maximum
combination of two goods that can be produced in an economy if resources are
fully and efficiently utilised
2. When we say fully and efficiently, it means that all
factors of production/ resources/ inputs are assumed to be ALL used up (nothing
left at the time being) to produce the highest possible number of output. Remember
that these two conditions must be met so that an economy is operating along the
PPC curve
3. If resources are underused/ underemployed, then the
economy is said to be operating inefficiently and points are located within the
curve. In such circumstance, there is no opportunity cost incurred in the
production of both goods since both of them can still be increased without
causing any opportunity cost to one another. In other words, when the quantity
of one output is increased, it does not lead to the reduction of another (refer to the diagram above)
4. The concept is pretty clear if you consider yourself
as a student and how you allocate your time in between a day. Suppose that you
spend typically 8 hours of sleep and another 8 hours in college, from 8a.m. to
4p.m in which you are only left with maximum 8 hours for both leisure and
study. Now, if you initially spend 1 hour on chilling with your friends and
another 1 hour of study, you realise that you can actually increase the time
spent onto both activities without getting into each other’s way, say 2 hours
of both respectively
5. You can even increase both to 3 hours each without
causing any opportunity cost. This is because the resource that you have, in
this case the TIME, is yet to be fully used up. Once you have used up all the 8
hours for both activities, then the only way to increase one is to sacrifice the
other. For example, consider a combination of 5 hours of leisure and 3 hours of
study. You realise that all the balance 8 hours have been used up and the only
way you want to increase your leisure activities, say to 6 hours, is by cutting
down your study time to only 2 hours. Opportunity cost has occurred
6. When you look at the PPC in terms of an economy/ a country, interestingly, you will realise that no countries in the world that can actually operate on its PPC. Somehow in a way or another, there will always be resources that stay unemployed e.g. youth unemployment and machineries not put to full use. There is not much that the government can do to an entire economy. Although there are measures in place, it is somehow not possible to make sure that the coverage is universal
7. As such, what an economy can do is to actually push itself close to its potential limit instead of hoping to operate on its PPC instead. An economy like Singapore is perhaps already operating very close to its PPC. Most lands have been used up that they need to enlarge the existing size of land banks and if there are any other resources, it could have been all exploited
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