Alexander's AP Macroeconomics Blog

Production Possibility Graph (PPG)

Production Possibility Graph 

1. Shows alternative ways to use resources
2. Each point on the PPG reflects a trade-off
3. Graphs are concave

4 Assumptions that can be made:

1. Fixed technology
2. Fixed resources
3. Full Employment + Productive efficiency
4. Two products are being considered

Productive Efficiency

1. Producing goods at the lowest cost, full employment of resources, allocating resources efficiently
2. Any point on the curve, point needs to be labeled

Allocative Efficiency

1. Combination of the most desired products by society, or those who are in charge of economic decisions.
2. Where do we want to produce on the curve, (more robots or pizzas), where most efficient.

Graphing Examples:

Point A: This point shows that it is not produced efficiently (attainable, inefficiently). 

Point B: This point means that goods are produced efficiently (attainable, efficient).

Point C: This point represents a technological breakthrough (unattainable).

You can watch this video for a brief explanation on how to draw these graphs if you're still unsure.