Answer to Question #43249 in Microeconomics for Ankush
What is production possibility curve? Exlain how this curve illustrates three concept-scarcity choice and opportunity cost and also show the effect of economic growth on his curve?
Production possibility curve is a curve that illustrates the production possibilities of an economy - the alternative combinations of two goods that an economy can produce with given resources and technology. A production possibilities curve (PPC) represents the boundary or frontier of the economy's production capabilities, hence it is also frequently termed a production possibilities frontier (PPF). As a frontier, it is the maximum production possible given existing (fixed) resources and technology. Producing on the curve means resources are fully employed, while producing inside the curve means resources are unemployed. The law of increasing opportunity cost is what gives the curve its distinctive convex shape.
Three concepts – scarcity, choice, and opportunity cost – help form the foundation for economic thinking and reasoning. The study of economics begins with the concept of scarcity. Scarcity describes the condition in which our wants are greater than the resources available to satisfy those wants. We face the problem of scarcity every day whether we think about it or not. It might be nice to dream about a world without scarcity, but the sad reality is that the things we want are scarce because the resources that are needed to produce them are scarce.
This condition of limited resources to meet unlimited wants leaves us in a situation in which we must constantly choose which of our wants we will seek to satisfy. For example, as time is scarce you must choose whether you will sleep away the morning or go to school. You must choose whether to spend your allowance or save your allowance. Scarcity prohibits you from saving and spending the same dollar, you must choose.
Economists define an opportunity cost as the most highly valued opportunity given up when you make a choice. So the opportunity cost of buying the video game is that you cannot buy the DVD. The opportunity cost is the opportunity lost.