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Overview of the Production Possibility Curve

Production Possibility Curve

Production probability curve is the curve that show the combination of two item or services that can be produce in the market in a certain amount of time provided that all other eternal factor that can results the curve are held regular such as, labour, technology land and capital. The curve shows the creation between two item and how much can we produce with the current resources or technology. As the name says 'opportunity' which also means that with anywhere near this much of resources, how a lot of item did it produce or achieve.

There are 3 types of production possibility curve which can be straight-line sloping down, concave and convex curve.

The first kind of curve has a constant negative gradient or constant ratio which also means that as one item/good reduces by one, the other item/good increase by one, and it will continually be constant. Which does mean that its opportunity cost will be always constant. But this kind of curve is not genuine because it cannot symbolize the market/overall economy.

The second kind of curve is known as concave curve, it offers increasing proportion as shifting the curve which also means that we need to diminish more of a item/good to create more of the nice and the reducing number will keep increase as a sacrifice for another item/good. Which does mean that the chance cost will keep increasing. Thus this graph is also is aware of as increasing opportunity curve. This type of curve is more genuine and it stand for the whole market or market.

The last type of curve is known as convex curve, it includes decreasing ratio as shifting the curve which is also means that people need to decrease less of the item/good to produce more of a good and the decreasing number will keep lower as moving across the curve. Which is does mean that the chance cost will keep lessening. Thus the graph is also known as decreasing opportunity curve. This sort of curve does not really exist in the true life economy, some says that in agriculture, this type of curve does exist but typically it is not.

Assumptions of the Production Possibility Curve

There are assumption on the production probability curve because the curve is not really a live supply as the marketplace always changes looked after cannot show every possible aspect of the market so we will have to keep it short and simple while still in a position to represent the marketplace. You will find four assumption of the creation possibility curve that are assumption of two goods/items, regular resources, regular technology and efficiency.

The first assumption is usually that the curve assumed that the market/economy have only two goods/items or that the goods/items will signify the whole market/economy. This way we could specify or assume the overall economy from the curve, because both goods/items simplify the market thus we only could interpret the economy because the truth is there are way too many goods/items to take into consideration or it is impossible to take everything into one curve. To conclude this assumption of both goods simplify the market/economy so that people could monitor the changes and the stands of the market/economy.

The next or second assumption would be that the resources that is resource to the current economic climate is regular or fixed. Resources will always change but we can not use the true amount of resources to construct the production probability curve, we will need to resources to be continuous to create the production possibility curve. Due to it frequent resources at the same time, we could use it to compare with another amount of resources at another time, with this we're able to analyse the increase in resources or decrease in resources.

The third assumption is quite like the second one as it assumed the technology is constant. This is an assumption of how well or how much the various tools and machineries will produce goods/items given the same amount of resources. It can be seen when a tool or machine produces 10 wedding cake with 10 kg of flour while another tool with an increased or more advanced technology produces 10 wedding cake with 5kg of flour or produces 20 cake with 10 kg of flour. This technological advancement may cause the production opportunity curve to change and technology innovations everyday thus we need to make it constant. Like the assumption of the continuous resources, we can utilize it as assessment as shown is the example, we can use the amount of goods/items produce to compare because is the technology innovations, more goods/items will be produce and the other way when the technology degrades.

The previous assumption is the efficiency, the production possibility curve expect that all the resources are utilize totally but in actuality the resources are never been utilize completely. This can be seen where the some labour haven't any motivation or center to work and just work at its fullest. This is actually the hardest factor to control so the opportunity of the labour power will be fully utilize is very less. There are times when the machineries are old and did not directed for maintenance that will cause the efficiency of the creation to drop which is another factor to donate to efficiency cannot be fully achieved. Thus it assumed that the work force is fully utilize and no waste products of resources to create the production probability curve.

Opportunity Cost

Production Opportunity Curve A

Opportunity cost is the cost or expenses needed to be given or sacrifice to gain something, like the production opportunity curve A above, we can produce either weapons or butter but to increase the production of 1 kind of goods/item we have to decrease the other, for example now we could producing at point A and we want to produce more of butter so we made a decision to shift our development to B, when our creation for butter raises, at the same time we need to decrease the weapons production in exchange because of scarcity.

There are 3 type of opportunity cost that happen to be increasing opportunity cost, continuous opportunity cost and lessening opportunity cost.

Production probability curve A shows increasing opportunity cost which may be seen at between point AB and Point Compact disk, to boost the production of butter by 10, the quantity of guns would have to be reduced by 5 but as heading down the curve like point C and D, to boost the creation of butter by 10, the creation of 50 weapons have to be reduced. From that we can say it is increasing opportunity cost because the chance cost increase as going down the curve from 5 to 50 to produce the same amount of butter.

Unemployment

Unemployment in conditions of business identifies a situation whereby a graduate or an operating age adult fails to get a job. There are various kinds of unemployment, which include traditional, cyclical, structural, frictional, hidden and long-term. This problem would lead to negative impact over time to the country's monetary growth.

In conditions of economics, unemployment is thought as the wastage of resources in a production. When this occurs the economy would not have the ability to reach the development possibility curve which is a result of any point that shows up INSIDE the curve. This is further illustrated by the production likelihood curve whereby the point which ultimately shows unemployment is at Point D which is located In the curve. At this point the resources aren't fully used in the development of goods but would still attainable. Point A, B and C on the other hand achieve full work in the development of capital goods and consumer goods. In addition to this, point E is an exemplory case of the production that is unattainable predicated on the current progression of technology and resources.

There are extensive ways to enhance the production possibility curve for all the resources to be completely utilized. The government would provide insurance, payment, and subsidies to aid in restraining of the demand. Besides, the labor market is never 100% efficient, therefore, the least wage plan should be reconsidered and the energy of unions should be reduced at the same time. This would then improve the economic over time.

Economic Growth

Economic expansion can be easily thought as the output move of the production possibility curve due to the go up of the current economic climate on the certain period or an increase in the production as a consequence the fully usage of scare resources. This change on then creation possibility curve implies that the economy has successfully increased its capacity to produce more.

The few factors that contribute to the economic expansion is the improvement in technology, the increase in man ability, the finding of new creation methods as well as raw materials. When there can be an progress in technology, the creation of goods or services would become more efficient. For instance in countries like China, the immediate economic growth is because of program of new technology to then manufacturing process. An economy would not be able to grow if there is an insufficient amount of resources allocated especially to the capital goods.

Next, the increase of work force is important to enable a more quantity of individuals to contribute in physical form in the production. A specific country allows expertise between the laborers to permit better quality and a proper divided process to increase the productive capacity and also to ensure to outward change on the development opportunity curve in the time to come.

Over the years new production methods as well as recycleables are discovered to enhance the economic expansion of the country. Including the first utilization of technology such as pcs or other digital gadgets to control the production methods such as robots has greatly enhance the output of the overall economy and many other firms contributing to this economic development. Different types of raw materials were introduced to guarantee the continuous source for the creation of the nice.

Diffence Between Constant Opportunity Cost and Increasing Opportunity Cost

Constant opportunity cost occurs when the development possibility curve is linear. The partnership between opportunity cost and quantity supplied is the same. Let's assume that a factory wishes to increase their development of good T from 250 models to 500 units, the factory must sacrifice 250 units of good R to be able to increase the production of good T. Thus, the percentage between opportunity cost and volume supplied is constant, 1:1.

The production probability curve of increasing opportunity cost is concave from its origin. Increasing opportunity cost means the greater items of good T produced, a lot more the chance cost of good R. Assuming that the factory has to forgoes 20 products of good R so the factory is able to produce 50 more models of good T. When the factory wants to increase the production of good T from 100 systems to 150 models, they need to release 60 devices of good R. In cases like this, it plainly shows us an increasing opportunity cost.

Reference

2000. Assumption of Development Opportunity Curve. 3 Feb 2015.

Available from :<

http://www. amosweb. com/cgi-bin/awb_nav. pl?s=wpd&c=dsp&k=assumptions, +production+possibilities

2014. Unemployment. Viewed on 7 February 2015.

Available from :<

https://www. boundless. com/economics/textbooks/boundless-economics-textbook/unemployment-22/definitions-102/defining-unemployment-388-12485/

2000. Unemployment. Viewed on 7 February 2015.

Available from :<

http://www. amosweb. com/cgi-bin/awb_nav. pl?s=wpd&c=dsp&k=unemployment, +production+possibilities

2015. Economic Development. Viewed on 7 February 2015.

Available from :<

http://www. economicsonline. co. uk/Competitive_markets/Economic_growth. html

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