Possibility Curve

Possibility Curve

Economics is about making choices. Each variable has a range of possible outcomes ranging from 0-100%, attainable and unattainable, based on the amount of resources available. Possibility curves are a visual representation of two variables; what their possibility is; what is lost or gained; and what the cost is of the choice.   The economic terms used to describe these concepts are scarcity and opportunity costs. Scarcity states there is a limited amount of resources and not enough to meet everyone’s’ wants and needs. Everything has a cost attached to it. Therefore, a choice is made it is made at the expense of something given up, which is added to the cost of the choice made. This is opportunity costs.

Figure 1.1 shows the various combinations of productions possibilities of two products utilizing the scarcity of resources (labour, capital and land). It is possible to make 0-20 tonnes of wheat, 0-30 cars or possible combinations of both products. For example, a possible choice is to produce 18 cars. To determine the production level of wheat based on the same scarcity of resources. This is determined by going directly up from the 18 car point on the axis to a point on the possibility curve, then straight across at a 90^o angle to the wheat axis. The result is 17 tonnes of wheat.

Figures 1.2, 1.3, and 1.4 depict the opportunity cost of decisions to produce more of one product then another, making a change in technology and choosing between capital goods growth and consumer growth. This is important data for the decision maker to make the best-informed decision.

My personal example of a production possibility curve is choices between employment/money and studies/marks. The scarcity of resources is time. Last semester I did casual work and five courses. The results that would have followed the curve were variations of income and marks. It was good to have a wage to pay for my classes but there was the opportunity cost to my grades. This semester I chose to put 100% of my possible time towards studies at the cost of $0.00 income.