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1. #PRODUCTION POSSIBILITY CURVE SIMPLE DEFINITION HOW TO#
2. #PRODUCTION POSSIBILITY CURVE SIMPLE DEFINITION DRIVERS#

Because there are only so many hours in a day, as I spend more time focusing on making pizzas, I simply cannot make as many hamburgers. I can spend my entire day making 32 pizzas, but this means that I will have no more time available to make a hamburger. To illustrate, let’s look at each of these concepts in the context of our simple example.įirst, how does the PPC curve demonstrate scarcity? In this case, the scarce resource is the number of hours in a day available to me.

In particular, the PPC curve demonstrates scarcity, trade-offs, opportunity costs, and economic efficiency. Knowing the production possibilities curve is key to your AP® Economics review because it brings together a number of economic concepts.

#PRODUCTION POSSIBILITY CURVE SIMPLE DEFINITION HOW TO#

Now that we’ve seen how to put together a simple example, let’s find out what makes this concept so relevant to studying for AP® Macroeconomics and AP® Microeconomics! What’s so Important About the PPC? We can see that the graph of the production possibilities curve in our simple example demonstrates visually the different production opportunities that are available to me, depending on the length of time I want to spend making either pizzas or hamburgers. This outward bowed PPC should look roughly similar to the graph at the beginning of this post. Hey! Where did point F come from? For now, ignore F, but we will come back to it when we discuss efficiency.

Now that we know exactly what my production possibilities are. This means I may have a set of production possibilities that looks like the following table: For example, during the day, I can make pizzas or hamburgers, and I only have so much time. It’s easiest to start by thinking about the production possibilities available to any person, like you or me. We’ll start by working out what exactly a production possibilities curve is by thinking through a simple example. In this post, we’ll build our understanding of the production possibilities curve from the ground up and work through some practice questions together so let’s get started! A Simple Example First and foremost, you’ll definitively need to master this concept if you want to ace your AP® Microeconomics or AP® Macroeconomics exams, of course! Beyond that, the PPC curve gives you an opportunity to make sure you’ve got a handle on some important economics subjects, such as opportunity costs and efficiency. The production possibilities curve is a crucial part of any AP® Economics review for a couple of reasons. So what is the production possibilities curve? The PPC curve is a way to represent the different production opportunities for a person, country, or trading partners. In that case, the production possibilities curve, sometimes called the production possibilities frontier, is a concept that you’ve got to know! Introduction to Production Possibilities Curve Pets are unnecessary they are evidence of failure to either obtain a leadership position or to get out and cut the losses.So you’ve started studying for the AP® Microeconomics and AP® Macroeconomics exams, and you want to know what’s essential for your AP® Economics review. All products will eventually become either cash cows or pets.

Companies should liquidate, divest, or reposition these “pets.”Īs can be seen, product value depends entirely on whether or not a company is able to obtain a leading share of its market before growth slows. Companies should invest in or discard these “question marks,” depending on their chances of becoming stars. Companies should significantly invest in these “stars” as they have high future potential. Companies should milk these “cash cows” for cash to reinvest.

#PRODUCTION POSSIBILITY CURVE SIMPLE DEFINITION DRIVERS#

The matrix reveals two factors that companies should consider when deciding where to invest-company competitiveness, and market attractiveness-with relative market share and growth rate as the underlying drivers of these factors.Įach of the four quadrants represents a specific combination of relative market share, and growth: These high growth rates then signal which markets have the most growth potential. Ultimately, the market leader obtains a self-reinforcing cost advantage that competitors find difficult to replicate. The growth share matrix was built on the logic that market leadership results in sustainable superior returns.