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Production Possibility Curve: An Economic Outlook


Task: Provide a thorough insight over the production possibility curve.


By implying a production possibility curve, the possible permutations and combinations of the production of two various goods could be estimated. The production possibility curve is a sort of graphical representation that signifies the output from an economy in which all the available sources are utilized in a very efficient manner. There are some assumptions and hypothesis to be made before implementing the ideologies of production possibility curve in an economy, they are: -

  1. Provided that the magnitude of resources and technology provided in an economy is constant, only two goods are produced in a certain economy.
  2. The required factor of production is limited to a certain level for both the products (Manning, 2014).

The major objective or intention behind writing this article on the production possibility curve is listed in the below section. Let us have a detailed look over it.

  • Acquiring the knowledge of implying the production possibility curve in a corporate or business environment.
  • Make clear the readers about the presence of scarcity in the selected economy.
  • Elucidate the economic significance of the phenomenon of increasing opportunity cost.
  • Provide the students with the basic principle behind the production possibility curve.
  • Significance of the production possibility curve in the [resent global scenario.

The element of scarcity has brought some confusion and questions which required to be attended on an urgent basis. The answer should not just rely on blaming the political structure and the influence of the societies. Let us have some of the prominent queries which have been emerged on the global platform because of the scarcity.

  1. What is the best way to utilize the available resources in the market?
  2. To what level an organization should produce?
  3. What are some justifiable sacrifices which could be committed in the current scenario that could aid the instant economic growth?
  4. The approach should be adopted to manufacture the required goods and services?
  5. What are the targeted groups to which these products and services should be delivered?

The above-provided questions have always created a dilemma among the manufacturers. It is to tackle the same problem of what to produce and up to what quantity, the production possibility curve was devised out. By this tool, the efficiency of an economy to attain maximum productivity by using the available resources could be ascertained and could be illustrated in the form of graphical representation.

Production Possibility Curves
As mentioned in the above section of this report, the probable combinations and mixture of the products that could be created in an economy by utilizing the available resources and technology could be estimated by the tool of production probability curves.

For an easy elaboration of the provided context, let us take an instance of the economy of the United States. Assume that the economy of the USA only manufactures food and clothing. The assumption is made to clarify the method by which the mode of production could be divided into various types of production. If the case of different countries is taken into account, then the selected economy could be classified into two separate groups. The major classification in which these products are classified is manufacturing products and agricultural products. The nations which could be classified into the section of third world countries majorly produces the agricultural products. The agricultural methodology of production requires a much more labor-intensive approach. Though if taken the case of the developed or the first world countries, they have high availability of capital resources. Hence the process of production would be much easier in the first world countries. Let us take a dummy production possibility schedule for the economy of the United States.

Production Possibility Curve

If all the observations are pointed down in the graph, a specific graph could be observed which is non-linear. If perceived from the point of origin, the curve could be observed as a concave one. The combinations which lie over the curve provided in the above section of this production possibility curve could be considered as an efficient permutation. The product mix which could maximize the efficient use of resources available in the economy is intended by the term efficiency. Let us take the point X in the figure provided above. Since the point is lying inside the production possibility curve, the permutation would be considered to be an inefficient one. The point X would signify that the economy is not utilizing the available resources efficiently. Taking into consideration the case that the economy if the US is producing thirty food units with respect to two clothing units, it could be observed from the graph that the company could create many more units without causing any repercussions. Point Z which is observed to be well away from the production possibility curve seems to be unattainable for the economy. The level of producing both 40 units of food and 4 units of clothing simultaneously.

The selected economy would perform to its limit best whenever the point coincides with the estimated production possibility curve. For any organization or economy, arriving at the maximum limit of production using the available resources is very important. The cost incurred for producing the goods follows an inverse relationship when they follow the production possibility curve. The required amount of money or the cost to sustain the level of production up to the production possibility curve is mentioned to be the opportunity cost. The payment which has been incurred to obtain the most of the alternative resources is in a way termed as opportunity cost.

The trend of increase in the opportunity cost could be traced from the concave shape of the production possibility curve towards the origin. As per the law of increasing opportunity, the production of both the products would have an inverse relationship. If the production of one product increases, then obviously the economy has to give up the production of the latter product.

The efficiency of gaining or manufacturing a certain product concerning the other product is termed to be the opportunity cost. The scope of opportunity cost is very high and could be implied in a lot of contexts. Let us take an example of the time taken to learn the principles of economics. It is quite probable that the majority of the time is being utilized in watching television than studying the principles of economics. The time taken to study economics could not be retrieved later for commencing other activities. It should be understood that the activities done under the ideology of opportunity cost or the production possibility curve retains the characteristics of a trade-off.

Opportunity Cost
In the stream of economy, the concept of opportunity cost is considered to be a very significant one. As mentioned in the above section of this report on the production possibility curve, the opportunity cost could be termed as the cost incurred for acquiring the alternative resources. In any process which involves the activity of decision making, a certain cost has to be involved. Let us take an instance of a person, who is provided with the choices of either staying at his home along with his family or just employing himself in a full-time job. If the person chooses to take the job, he would have to comprise with the period he could have spent with his family. There is no intermediate that he could both spent quality time with the family and pursue his full-time job simultaneously. Here the opportunity cost would be signified for the time-lapsed foe the person in pursuing his full-time job. At the same time, if the person chooses to stay with his family, the time which could have been spent to build a successful career could be termed as the opportunity cost.

If observed the people who are working in the corporate environment, they often tend to create a balance in their official and personal life so that the maximum level of success and satisfaction could be obtained. Though the majority of them find it very difficult to find a perfect rhythm because of the lack of aptitude for allocating the available resources. Let us take an instance is a student pursuing his academic career in a university. The probability of failing him in the academic evaluation would increase if he spends most of the time in participating parties. It is the time which he should have been studying for semester exams is wasted in partying and hence it could not be recovered. If on this occasion, the student fails in his semester examinations, the time wasted in partying could be termed as the opportunity cost.

Significance of Tradeoffs from the perspective of Management
Trade-off: The major ideology that you have to give up something to attain something contributes to being the foundation of opportunity cost and production possibility curve. This is one of the core principles followed in the post of an executive and management. Though it should be noted that there is a backdrop associated with it. The opportunity cost would tend to increase to the level person wants success in a certain field. It is the trade-offs suffered by the executives and the level to which they have handled it that would be taken as the parameter of success. This is the same that troubles and haunts an entrepreneur.

It is the two types of job or tasks which the executive has majorly encounter in his career. In the former aspect, the executive is expected to ac with much more perseverance, ability, creativity, courage, etc. to encounter the restrictions and hence generate trade-offs. The absence of trade-offs in an organization would signify the organization which is managed in a very poor manner. The situation in which the person wants neither the less of both aspects, he would move towards the better management of the scenario. The better management of the existing situation would help the person in acquiring the best of the provided resources. By better management, it is intended to remove the existing flaws and drawbacks retained in the business process followed by the company. In the second aspect, it is being expected from the executives to manage the element of trade-offs n the very best possible way. Both the positive and negative aspects of the business should be manipulated to a level where the company could attain the maximum profit and output. This approach would justify the ideology of gaining maximum profit from the least pain.

It is a negative aspect of the trade-offs that it comprises certain damage to the lives of other people, and hence it requires an innovative approach and some dynamic changes to create a new perspective regarding it. Let us take an example of the efficiency level of the Japanese population which was once revered and admired. The companies in Japan had strict management policies and hence had taken a very hard stance towards inefficient employees. To cope up with the decided level of efficiency, the workers have started to sacrifice heir private and personal life. The people of Japan had lost the personal life and the flexibility in their schedule which as enjoyed by the workers of other first world countries. Though it should be noted that most of the organizations in Japan provides the candidates with lifetime employment. This creates a large amount of official satisfaction and loyalty among the customers towards the company which employs them. In the present scenario, the Japanese provide its citizens with millions of opportunities, though they don’t provide much value to the institution, the revenue is somehow generated. If looked at the local demography of Japan, it could be ascertained that the efficient workers of Japan have envisaged themselves into obsolete and much less efficient sectors like banking, real estate, and financing. The people while have envisaged themselves at the job of management are termed to be madogiwa-zoku in the Japanese language which means the person who stares out of the window.

Consider the production possibility curve of the US economy illustrated in the previous section of this report. It has been evident in that graph of production possibility curve that the higher production of food would bring down the production of cloths and vice versa. The situation existed like this because the production possibility curve acquires the hypothesis that the resources are limited. It is based on the efficiency and presence of mind of the management that the available resources are allocated in various sections. If the absence of trade-off is recorded, then it could be concluded that the current process is below the production possibility curve thereby signifying the inefficiency of the US economy. If the economy decides to make up the production to the level of production possibility curve, then the efficient allocation of resources is very important.

Economic Growth
It could hence be ascertained from the content provided in the above section of this production possibility curve that the production and efficiency above the production possibility curve are very hard and almost impossible to attain. Though it should be noted that the parameter of output production could be increased by working efficiently in the economy. The increase in the output production majorly signifies the growth of a certain economy that has increased its production capabilities. By the term economic development, the upsurge in the availability of the resources along with the technology is signified.

We are again making it clear that the hypothesis of limited resources is being considered in this context. Hence the magnitude of resources and technologies could not be considered in the case of superior availability. The production possibility curve would signify a skewness or change in the path if the availability of either the resources or the technology varies (You could witness this phenomenon in the below-given diagram of this report). The increase in the availability of technology would shift the graph towards the right and similarly, the decrease in it would shift the graph towards its left. The availability of better technology would increase the production of clothes in that context. Hence the graph of production possibility curve would shift towards the right Though if the technology regarding the production of food has been augmented, the graph would shift towards the left.

Production Possibility Curve

Production Efficiency
There could be many factors behind the inefficiency of a manufacturing unit and hence the employed laborers could not be solely accused of the same. The management is liable to efficiently allocate all the available resources to the required places. Let us take an instance of an engineering graduate is working as a driver of a taxi cab. The case could be considered as an inefficacy of the person since he is not using his available resources, efficiently. The condition would portray the existence of underemployment of resources.

It is the efficiency of the selected economy which analyzed by using the existence of trade-offs. The reader should understand that various aspects and ideologies regarding efficiency are implied to attain better management skills. It is the output generated by an organization which is considered to be the efficiency from an economist’s point of view. The definition of an organization is not limited t just an entity, it could be a group of workers, a factory, a production line or a manufacturing unit, even a whole company, etc. The performance of the organization is limited since the availability of the resources, technology and the relevant knowledge is regulated.

The term inefficiency is majorly used when one unit is not performing to the level which is considered to be its full potential. The resources are being wasted if they are not being allocated wisely for attaining the maximum efficiency or production by keeping in mind the trade-offs.

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