The Production Possibilities Curve acts as the maximum levels of output of two kinds of goods (capital and consumer) developed by the firm sector. As you can tell from the image, the curve is concave or bowed related to the origin, which shows the increasing opportunity cost as a society specializes more and more towards one sector. The opportunity cost is an alternative that must be forgone in order to pursue a certain action; for example, when I’m spending my time in class I am choosing to do thus action when I could be spending my time working. I choose to go to class because in the long run, it is the better of the two actions meaning that the opportunity cost of working is inferior to the action I am pursuing. Albeit, I do sometimes work while I’m in class but in that case my inferior opportunity cost would be eating or sleeping which is far less productive but I digress. The law of increasing opportunity costs defines the opportunity cost principle as the production of a good increases, the opportunity cost of producing an additional unit decreases; a vivid example would be the physics of tug of war, as one side gains more the slack must be taken from the other end. The curve down is because as resources are moved out of manufacturing in order to produce more goods/services, manufacturing output declines.
In the Production Possibilities Curve example, point B would represent a majority of the production on Guns, point D would represent an equivalent production of Guns and Butter and point C would represent a majority of the production on Butter. There are indefinite benefits to specializing in a particular goods production due to the law of economies of scale which states that the more we specialize our production towards a particular good, the lower the price per margin it takes to produce that good. Once again, the margin is the addition or subtraction of one more unit of measurement whether it be one more good, worker, etc.. The Production Possibilities Curve being the maximum level of output, point A would represent a reduced amount of production and point X would represent an increased amount of production per total resources acquired and available. The achievement of point X is rather unobtainable while point A would be achieved by unemployment or a waste of the use of obtainable resources. In order for the Production Possibilities Curve to shift outwards which would allow a higher level of production between the two goods, there must be economic growth by an increase of land, capital or knowledge which knowledge could mean innovational technological breakthroughs. In order for the Production Possibilities Curve to shift inwards which would reduce the level of productivity between the two goods, the price of input supply or raw materials would increase which could mean an increase in the price of gas or even an increase of tax from purchasing the materials for production.
An example of US history which affected the Production Possibilities curve of our economy is our governmental involvement allowing the free market capitalistic economy to take place. Capitalism is the private ownership of land, labor, and producing capital by entrepreneurship. Our free market capitalism expresses the economic freedom in starting our own enterprise using our own supply of resources to specialize or generalize in producing goods and/or services. We in the US have the right to free agency which means to determine work, production and consumption choices. The free market economy is what set us apart from the USSR during the cold war in which Joseph Stalin had limited their production possibility by controlling the economy through their government by regulating the economy’s supply and price. Their government’s involvement also limited their economy to a reduced amount of competition, and as we know competition breeds innovation. Our free market capitalistic economy competed against ourselves breeding the evolution of the microprocessor which has allowed us to make these great improvements of everyday life and productivity through our utilization of our technology which was a byproduct of our economic infrastructure. We specialized in technology which created cheaper marginal prices per unit and till this day we are continuously focusing on further competing and innovating so much so, that the world is now following.
