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The Production Possibilities Curve (PPC) is the 1st curve you will learn about in the AP Macroeconomics course, & it's quite simple.

We use the PPC to learn about trade-off, which is giving something up to have something else.

The PPC shows the tradeoffs in an economy that only produces 2 goods (I told you it was very simple!😄).

⬇️Here is how the curve looks.⬇️

Source: Wikipedia

How We View the Graph:

  • on the axis, we have 2 goods: Guns & Butter(weird combination but ok 😂)
  • at point D, say we produce 40 sticks of butter & 5 guns
  • so the opportunity cost of producing 1 gun is 8 sticks of butter, while the opportunity cost of producing 1 stick of butter is 1/8 of a gun 

The graph's main purpose is to show us efficiency.

  • the line is curved to show increasing opportunity cost
  • point's B, D, & C are efficiency in production (they are directly on the line)
  • point A is inefficient and signals high unemployment or resources used inefficiently (any point below the curve)
  • At point A, we can produce more guns and make the same amount of butter or vice versa - therefore we are inefficient at point A
  • point X is only possible through trade or economic growth through education, technology, or physical capital increase (any point above the line)

There are 2 types of efficiencies: 

  • Productive: Producing as much as possible in the cheapest way
  • Allocative: Producing a mix of goods that consumers want

The Graph's other Uses

  • We can use two of the same graphs of different economies and compare them to find the best way to trade. 
  • Through comparing, we utilize terms such as comparative advantage & absolute advantage 
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