Olha in Economy

The Possibility Curve PP1 illustrated above is representing the necessity to make the choice and the trade-off or opportunity cost that everyone has to consider when making the decision. For example the choice to produce 12 units more of Product 1 means that we have to give up 20 units of Product 2. Points a and b which are on the production possibility curve represent the maximum of the Product1/Product 2 mix that the economy can produce with given resources. Point c is within the green zone and this means that the resources are not fully used and somewhere the economy is not working with full power. Point d is unattainable at the moment and economy should grow from PP1 to PP2 to be able to reach the desired output.

As a great example is my decision to buy a house. I like to travel and spend some sum of money every year on that hobby. Currently I am at point c and my monthly rent payments and travel spending don’t use the resources available at full. But with the buying the house I will get to choose between high monthly payments for better house and short trips a or lower monthly payments for condo with limited space and the possibility to have unforgettable trips b. The paradox is that every choice made is right depending of the point of view. Another possibility is to get better education that means more resources can be used and move the possibility curve from PP1 to PP2 and get better house and more trips d. And this is what I am doing now. That could involve more time and money spent now when trying to use all resources at point c wisely with the possibility to get better return in the future. As the opportunity cost I need to postpone buying the house for some time.