Production Possibilities Curve

Production possibility graphs are an excellent resource for economists because they provide a visual aid which clearly illustrates how much of one particular good can be produced while also producing another type with the available resources.

Graphs are a fundamental part in determining many different aspects regarding supply and demand. Finding that delicate balance is referred to as the economic equilibrium. The equilibrium refers to the point at which the most output can be obtained for each individual product while utilising the resources to their full potential.



Figure 1
Source: Wikipedia



For example, if you look to the graph in Figure 1 you will notice 5 points on the graph. Anything within the curve of the line is attainable production (point A), and anything on the outside of the line (point X) is unattainable meaning that there are not enough available resources to attain that output. Points B, C and D all represent different levels of output based on which product you would primarily produce. Point B clearly would produce many more guns than butter. Point C the opposite, more butter than guns. Point D would represent the equilibrium, showing the point on the graph where maximum outputs will be reached for both guns and butter.

I'd have to agree with the statement that a picture is worth a thousand words - just by glancing at a production possibilities graph, you are able to identify the point at which maximum output would be reached or how many guns would be sacrificed for more butter and vice-versa.