PRODUCTION POSSIBILTY CURVE
WHAT IS ECONOMICS OF SCARCITY?
Economics of scarcity has to do with the substitution of the production of the commodity for one another. This entails optimum utilisation of valuable resources at every point on the production possibility curve.
Production possibility curve
Production possibility curve or transformation curve is the presentation in a graphical form of all possible combination of two commodities in which a society can produce by employee full and efficient resources at a given state of technology
It shows the maximum output of one goods possible with the available resources given the house built of other goods . History feels all possible combination of total output of a society. It should be noted that every economic system is faced with the problem of resources allocation . This is because resources are scarce relative to demand for them. They have four choices to be made on whether to produce more of product A or b. Discuss resources should be put to alternative uses.. 1 products must be sacrificed for another for example of a society devote his resources to produce electronics or cutting it come with a given quantity of resources produced various combination of the two gods. When we brought all this combination the resulting line is called production possibility curve. Production possibility curve slopes downward from left to right and this indicates that there is an opportunity cost of producing more of electronics and less of cotton it can also be prepared for a firm or a country.
ASSUMPTIONS OF PRODUCTION FRONTIER.
- Choice should be made a choice has to be made between two product that is whether to produce more of A or B.
- Full employment of resources it is assumed that resources are fully employed in the most efficient way.
- Supply of resources and state of technology are fixed the supply of resources and the state of technology are fixed in the short run.
- Efficient resources utilisation any point outside the boundary shows unemployment of resources the society can correct is this situation by producing more or wider or both groups in such a situation resources can be fully allocated and utilised.
- Economic growth the economy's productive capacity is increased then the BPC will be pushed outside increase in resources and improvement in technologies can help to increase output of both commodities thereby leading to economic growth.
- It explains the concept of opportunity cost it helps to give explanation to the concept of opportunity cost every point on the curve indicate that there is an opportunity cost of producing more of one commodity and less on the other
- Steps to solve economic problems of what to produce how to produce form to produce efficient management of scarce resources full utilisation of resources available.