Production Possibility Curve

Considering the production of maize and shirts in Botswana, we can use the notion of the production possibilities curves to determine levels of efficiency, inefficiency, economic growth and technological improvement.

The production possibilities curve (PPC) is a graph that shows the different quantities of the two goods (in this case, maize and shirts) that an economy (Botswana) could efficiently produce with the limited productive resources. To be able to illustrate this simply we assume that the economy of Botswana behaves as if the only thing to consider is how to allocate its currently available resources between the production of maize and shirts over a period of time. The resources available for production are the land, the capital, the technology and the labor. The PPC shows there are limits to production, so the Botswana economy, to achieve efficiently, must decide what combination of maize and shirts can be produced.

In general terms, the maize and shirts trade off can refer to Botswana's more general and real world choice between becoming a more agricultural society and becoming a more manufacturing oriented society.

The Production Possibility Curve

We illustrate using the below assumptions:

* Botswana can only produce maize and shirts

* The level of technology does not change (and if it does the curve will also change)

* The resources of the economy can be used in the production of both maize and shirts

Maize Output

Y

A

B

X C

Shirts Output

According to the PPC, points A, B, C all appearing on the curve represent the most efficient use of resources or minimum productive inefficiency. Reallocating available resources creates an opportunity cost. Choosing more output of shirts usually means giving up output of maize. In order for Botswana to produce more maize, it must give up some of the resources it uses to produce shirts (point A). If shirts are in demand, the cost of increasing its output is proportional to the cost of decreasing output of maize.

Point X and any point within the curve represent an inefficient use of resources, which means getting less output from inputs/resources which if devoted to some other activity would produce more output.

Y represents