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Production Possibilities Curve: Graph and Detailed Analysis

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Using a graph and a table use two goods to construct a production possibilities curve. Clearly explain what a variety of different points on the curve mean. What would make the curve expand or contract? Why is efficiency lost at the extremes, as when substantially more of one good and very little of another is produced?

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Solution Preview

See the attached file for the graph. The two goods are cars and steaks.

>Clearly explain what a variety of different points on the curve mean.

Any point on the curve is an efficient point: the country could not produce more of one good without sacrificing some production of the other.
Any point inside the curve is an inefficient point: the country could produce more of one or both goods without making any ...

Solution Summary

This solution uses Excel to draw a sample Production Possibilities Curve (PPC). It explains in detail what various points on the graph mean and explains why production efficiency is lost at the extremes of the curve.