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What do Points Lying Below and Above the PPC Signify?

What do points Lying Above or Below the Production Possibility Curve Signify?

As we can see from the PPC diagram, there are some production points lying above the PPC, some below it and some on it.

Points lying above and below the PPC

Points Lying Beyond or Above the Curve

It is important to note that any point which lies above the curve shows such a combination of goods where the level of production of both the goods or any one good is more than any point lying on the PPC. 

For example, point F in the diagram lies above the PPC. It shows a combination of 9 units of wheat and 5 units of rice. Even though at this point, the units of wheat are achievable but, the units of rice cannot be yet achieved by the nation with its present resources and technology. The maximum rice which a nation can produce is 4 units. Therefore, a points F and G lie above the curve and represent such combinations of goods which are unattainable. 

Hence, all the points that lie above the curve show such combinations of goods that are unachievable with the given resources and technology of the nation. Those points can only be achieved if the resources increase or technology changes. For example, point G in the diagram.

Points Lying Below the Curve

Any point which lies below the curve shows such a combination of goods where the level of production of both the goods is less than any point lying on the PPC. This happens because some the resources of the nation are unemployed or underutilized. 

For example, point H in the diagram lies below the PPC. It shows a combination of 5 units of wheat and 2 units of rice which is less than what the nation could achieve if all the resources are fully utilized.  

Therefore, all the points that lie below the curve show such combinations that are achieved when the nation isn’t fully utilizing its resources i.e., some of the resources are not utilized or are unemployed. The nation can reach a point on the PPC (which is more than what it is currently producing) when it is able to fully utilize the unemployed or underutilized resources. 

An example can be when a nation faces unemployment. In such a situation, the nation is at a point below the PPC such as point F, and can reach a point on the PPC when the unemployed people are employed. Another example can be when a machine or plant is working under capacity, thus leading to lesser production.

Points Lying on the Curve

All the points lying on the curve show the production possibility when the nations resources are utilized fully with the given technology. 

These points show the maximum which a nation can produces when all its resources are utilized fully with the nations given technology. Points A, B, C, D and E represent such combinations. When the resources are being fully and efficiently utilized, more of one good cannot be produced without decreasing the production of the other. 

Key Points

  • Points that lie above the curve show such combinations of goods that are unachievable with the given resources and technology of the nation.
  • Points that lie below the curve show such combinations that are achieved when the nation isn’t fully utilizing its resources i.e., some of the resources are not utilized or are unemployed. 
  • Points lying on the curve show the production possibility when the nations resources are utilized fully with the given technology. 
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