Introduction

After you have worked through this section of the learning unit, you should be able to:

  • draw a production possibilities curve to illustrate the different combinations of goods and/or services that can be produced if resources are used fully and efficiently

We will make use of our production possibilities table for Zanadu to draw a production possibilities curve or frontier:

Table 3 Production possibilities for Zanadu

Combination Laptops Mobile Phones
A 5 000         0
B 4 000 10 000
C 3 000 18 000
D 2 000 24 000
E 1 000 28 000
F       0 30 000

On the vertical axis, the number of laptops (in 1 000s) that can be produced is measured, while on the horizontal axis, the number of mobile phones (in 1 000s) that can be produced is measured.

If Zanadu makes efficient and full use of its resources, it can produce the following combinations:

  • Point A indicates a combination of 5 000 laptops and 0 mobile phones
  • Point B indicates a combination of 4 000 laptops and 10 000 mobile phones
  • Point C indicates a combination of 3 000 laptops and 18 000 mobile phones
  • Point D indicates a combination of 2 000 laptops and 24 000 mobile phones
  • Point E indicates a combination of 1 000 laptops and 28 000 mobile phones
  • Point F indicates a combination of 0 laptops and 30 000 mobile phones

Combining these points gives us a production possibilities curve or frontier.

Watch the following demonstration of how to draw the production possibilities curve.

This production possibilities curve or frontier indicates the combinations of laptops and mobile phones that are attainable (can be produced) when Zanadu's resources are fully and efficiently used. Note that any point on the production possibilities curve is a possible combination, but we will only focus on points A, B, C, D, E and F.

Because the curve shows all the different possible combinations, and because it takes into account all the available resources and its efficiencies, it shows the boundaries (limits) of production possibilities for producing two goods. It represents the potential output of Zanadu.

It is important that you have a very good understanding of the production possibilities curve since we will be using it to explain scarcity, choice, efficiency, inefficiency and opportunity costs.

Activity

Do the following activity before you proceed:

You are given the following information about production possibilities for Paradiso:

Combination Food (tons) Guns (millions)
A 1 000 0
B 900 1
C 750 2
D 550 3
E 300 4
F 0 5

Your task is to draw a production possibilities curve for Paradiso.

Click to View Answer