Income

Production possibilities curve

Posted on July 22, 2009 at 7:26 am

People try to get the most from their limited resources by making purposeful choices and engaging in economizing behavior. This can be illustrated using a conceptual tool called the production possibilities curve. The production possibilities curve shows the maximum amount of any two products that can be produced from a fixed set of resources, and the possible trade-offs in production between them. Admittedly, this is an oversimplified model because economies obviously produce more than just two products. Nonetheless, the production possibilities curve can help us understand a number of important economic ideas.

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