What do you mean by the production possibilities of an economy?

Production possibilities mean the various combinations of two given goods that can be produced using the fixed resources in an economy. It is based upon the assumption that the resources are fully and efficiently used. It is based upon the problem of what to produce. As we know that the resources are limited with alternative uses, i.e the available resources can be used in several manners.

For eg – Suppose an economy can produce only two goods – TV and Computer using the same resources in such a manner that if all the resources are used to produce TV then no computer could be produced and vice versa.

So there exists the need of choice that how many units of TV should be sacrificed to produce some units of computers i.e, it devotes some of the resources in producing TV and some in Computers.

The various possibilities of producing both the articles are listed below –

The above table shows that if we produce 2000 computers then the production of TV sets will be zero. In the same manner if 5000 TV sets are produced the production of computers will be zero.

The possibilities 2nd, 3rd, 4th and 5th also show that how the increase in production of TV sets will affect the production of computers.

This is what we call production possibilities of an economy which arises due to scarcity of resources having multiple uses.