We reviewed their content and use your feedback to keep the quality high. Now show how economic growth could lead to an increase in the production of both goods. Between these two categories lie mixed economies that combine elements of market capitalist and of command socialist economic systems. Source: Based on Dale W. Jorgenson, Accounting for Growth in the Information Age, Handbook of Economic Growth, Phillipe Aghion and Steven Durlauf, eds. An inefficient organization operates with long delays and high costs, while an efficient organization is focused, meets deadlines, and performs within budget. If each continent were to specialize in the good in which it has a comparative advantage, world production could move to a point such as H, with more of both goods produced. In this situation, we would expect South America to export food to Europe while Europe exports computers to South America. Producing at point H requires no more resources, no more effort than production at Q. Currently, we are looking for a System Analyst who will be a part of a strong team of talented individuals . Complote the following table by . Consider, for example, the dramatic gains in human capital that have occurred in the United States since the beginning of the past century. This is why the production possibilities curve is bowed outwards. 2003-2023 Chegg Inc. All rights reserved. In particular, she found that countries in the northern part of the Union, such as France and Germany, tended to specialize in relatively high-valued goodsoffice equipment and electrical goodswhile countries in the southern part of the Union specialized in relatively low-valued goods such as food and textile products. Table 2.1 Sources of U.S. Economic Growth, 19482002 summarizes the factors that have contributed to U.S. economic growth in the past half century. It takes the concept of opportunity cost, which we already explored, and helps us make the best economic decision we can make, which is to say, the most efficient decision. Efficieny in the Production Possibilities Model, 3. After you have worked through this section of the learning unit, you should be able to: Inefficiency occurs when resources are not fully and efficiently used. Stack of raw sugar cane. Efficiency in the production possibilities model Suppose the fictional country of Acadia produces only two goods: rye and telephoto lenses. Those examples of technological progress through applications of computer technologyfrom new ways of mapping oil deposits to new methods of milking cowshelped propel the United States and other economies to dramatic gains in the ability to produce goods and services. The PPC can be used to illustrate the concepts of scarcity, opportunity cost, efficiency, inefficiency, economic growth, and contractions. By 2006, nearly 32% had graduated from college. We can pick any two points on a production possibilities curve and explain the tradeoffs, or opportunity cost, of producing different combinations of these two goods. By focusing on the production of consumer goods, the people in the economy will be able to enjoy a higher standard of living today. 17. To review, any point outside the curve is not possible, and points inside the curve are possible but not efficient. We must be wary of slipping into the fallacy of false cause by concluding from this evidence that economic freedom generates higher incomes. 2. 137 lessons Figure 2, below,illustrates these ideas using a production possibilities frontier between health care and education. A study by Carmen Diaz Mora, an economist at the University of Castilla-La Mancha in Spain, found that the bulk of the expanded trade within the Union was trade within industries and that it was driven by comparative advantage. First, the emphasis on individual ownership and decision-making power has generally yielded greater individual freedom than has been available under command socialist or some more heavily regulated mixed economic systems that lie toward the command socialist end of the spectrum. Paradiso can increase the production of guns without decreasing the production of food. In fact, the song 'Guns Before Butter' was written in 1979 by Gang of Four about this concept. The production possibilities curve gives us a model of an economy. Thus, producing efficiently leads to maximum production, which is what the PPF shows. Must be self-sufficient and driven; Able to meet deadlines and schedules. This is the point that any society should strive to reach, since it indicates that the society is indeed making the best use of its scarce resources. The chart shows the percentage of this increase accounted for by increases in the quantity of labor and of capital and by increases in the quality of labor and of capital and improvements in technology. Step 1: Identify subactivities for each Primary Activity. In the graph (Figure 2) above, a society with a younger population mightachieve allocative efficiency at point D, while a society with an older population that required more health care mightachieve allocative efficiency at point B. Suppose Party Country chooses to produce at point A while Sleepy Country chooses to produce at Point B. Many students select point B because it is in-between the other two, but the production possibilities model is not designed to demonstrate allocative efficiency. We call this the law of increasing opportunity costs, but some people call it the law of diminishing returns, which is the same thing. An increase in the factors of production available to the economy would shift the curve outward to SNT, allowing the choice of a point such as N, at which more of both goods will be produced. Suppose the fictional country of Teton produces only two goods: rye and harelbags, The following graph plots Tetoris current production pocsibelities frontier, and indudes six different output combinations given bry black points (plus tymbols) labeled A to f . All nations also rely on government to provide defense, enforce laws, and redistribute income. Points located on the production possibilities frontier, such as B and C, represent efficient output combinations. Because there is unemployment and firms are not making use of all their capacity, Paradiso is not making full use of all its resources and is at a point inside the production possibilities curve. In this example, we assume that each continent has a linear production possibilities curve, as shown in Panels (a) and (b). Sources of data In the following table, indicate whether the researcher in the scenario is collecting experimental data or observational data. They have helped shift the countries production possibilities curve outward. The Loew's Jersey Theatre is a movie palace theater and live entertainment venue located in Jersey City, NJ. Government may supplement the private consumption of some goods by producing more of them itself, as many U.S. cities do with golf courses and tennis courts. Principles of Economics by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted. Suppose that Ciana is deciding whether or not to buy a pair of sandals that she has been researching online, and also the best place to make her purchase. That's where the production possibilities model comes in. Policies to encourage growth generally involve postponing consumption to increase capital and human capital. Source: World Bank, World Development Indicators Online, available by subscription at www.worldbank.org/data; Central Intelligence Agency, The World Factbook 2004, available at http://www.cia.gov/cia/publications/factbook/index.html for the following countries: Bahamas, Burma, Cuba, Cyprus, Equatorial Guinea, North Korea, Libya, Qatar, Suriname, Taiwan, Zimbabwe; Marc A. Efficiency in the production possibilities model, Suppose Bulgaria produces only two goods: corn and computers. Countries at the command socialist end of the spectrum include North Korea and Cuba. Conversely, the U.S. can produce a lot of wheat per acre, but not much sugar cane. A failure to allocate resources in this way means that world production falls inside the production possibilities curve; more of each good could be produced by relying on comparative advantage. Restrictions on trade thus reduce production of goods and services. Utilizing advanced technology and fast-track digital initiatives to offer the best value and services to their customers.. This indicates a position of inefficiency. Given those choices, which combinations will be produced? ott 2021 - feb 20231 anno 5 mesi. If nations specialize, then they must rely on each other. Market capitalist economies lie toward the left end of this spectrum; command socialist economies appear toward the right. lessons in math, English, science, history, and more. Stuijt adds that "all these factors will contribute to a particularly high economic efficiency." Dillon also reminds us of the pandemic's lasting mark. Or how much corn versus how much beef should country A produce to be the most efficient? A production possibilities curve in economics is a model that measures production efficiency based on the available resources. While a point inside the production possibilities curve indicates that both more laptops and mobile phones can be produced, a point on the curve indicates that it is not possible to increase the production of one good without decreasing the production of the other good. Innovations in transportation (automobiles, trucks, and airplanes) have made the movement of goods and people cheaper and faster. 2.2M views 8 years ago Macroeconomics Unit 1: Basic Economic Concepts In this video I explain how the production possibilities curve (PPC) shows scarcity, trade-offs, opportunity cost, and. The implications of our model for trade are powerful indeed. In effect, the European Union has created an entity very much like the United States. Efficiency in the production possibilities model Suppose the fictional country of Shenandoah produces only two goods: millet and handbags. Productive efficiency is a great launching . The following graph shows Argentina's current production possibilities frontier. A dizzying array of new materials is available for manufacturing. The opportunity cost of this switch is the value of what we gave up to get it, which in this case means we would have to give up the opportunity to produce two computers, or at least this is how we've been simplifying it. 14. Critically analyze the concept of Pareto efficiency. In terms of our production possibilities curve, this is represented by a point such as H1 which lies inside the production possibilities curve. It opened in 1929 as one of five Loew's Wonder Theatres. If Paradiso is producing at point C, as indicated in the diagram, you can conclude the following: Point C is on the production possibilities curve indicating that Paradiso is efficient in the production of food and guns. In particular, its slope gives the opportunity cost of producing one more unit of the good in the x-axis in terms of the other good (in the y-axis). The production possibilities curve graphs all of the. Every economy faces two situations in which it may be able to expand the consumption of all goods. The input is any combination of the four factors of production: natural resources (including land), labor, capital goods, and entrepreneurship. By moving from point H1 to a point such as C, which is on the production possibilities curve, both more laptops and more mobile phones can be produced. If you are producing the right combination of two goods, then you're using your resources efficiently. It does, however, require that the worlds resources be allocated on the basis of comparative advantage. What is the role of economic freedom in the economy? Productive efficiency means that, given the available inputs and technology, it is impossible to produce more of one good without decreasing the quantity that is produced of another good. Thanks David Stevens for this great post: 3. Figure 2.13 Economic Growth and the Production Possibilities Curve. Similarly, Germany specializes in the production of higher-quality cars while Spain specializes in lower-quality vehicles. She says that "as product demand increases and workforce challenges arise, the top priority of most of our customers in this late phase of the pandemic is production floor efficiency. Figure 3. In the United States, for example, taxes imposed on cigarettes discourage smoking, while special treatment of property taxes and mortgage interest in the federal income tax encourages home ownership. Explain the classification of economic systems, the role of government in different economic systems, and the strengths and weaknesses of different systems. Diaz Mora found that comparative advantage tended to correspond to income levels. The curve itself is an efficiency curve, which means it's showing us all the ways we can simultaneously produce two goods efficiently. The proposal for cooperation between two countries that had been the most bitter of enemies was a revolutionary one. As we saw earlier, the curve of a countrys PPF gives us information about the trade-off between devoting resources to producing one good versus another. Figure 2. It re . Activity Mark the initial quantities of the two goods as CDA and JA, respectively. At these points, it is impossible to increase the production of one good without producing less of the other. We're talking about the production possibilities model in this lesson. As a member, you'll also get unlimited access to over 84,000 In this paper, we used a simulation model to study the effects of bee density and hive distribution on pollination efficiency for . They can each produce two goods: food and computers. Generally speaking, it is economies toward the market capitalist end of the spectrum that offer the greatest inducement to allocate resources on the basis of comparative advantage. As you can see, it takes more time and resources to produce a car than it does a computer, and the production possibilities model will show us this visually. This proposition is illustrated in Figure 2.15 Economic Freedom and Income. Three different stores in the area sell, 1)The slope of the blue curve measures the plane's .. A- TIME IN THE AIR B-HEADING C- ALTITUDE D- RATE OF ASCENT 2)The unit of measurement for the slope of the curve is. A DEGREES B MILES OER, The slope of the orange line between points A and B is____ a)5 degrees per hour of sunlight b)2.5 degrees per hour of sunlight c)4 hours of sunlight per degree d)5 hours of sunlight per degree. To increase the production of food, they will have to decrease the production of guns. 2. Price Elasticity of Supply | What is Elasticity of Supply? Experts are tested by Chegg as specialists in their subject area. They are at a point inside their production possibilities curve and not at a point outside. Members of the European Union can trade as freely with each other as can states within the United States. Now that you know how to calculate your point-in-time PE, let's zoom out (way out) and look at it in the bigger picture when we need to make more than one product: the production possibility frontier. Did you have an idea for improving this content? Check all. The following graph plots Shenandoah's current production possibilities frontier, and includes six different output combinations given by black points (plus symbols) labeled A to F. Japan and Italy joined Germany in this effort. Countries in the northern part of the European Union tend to have high per capita incomes and high levels of human capital and technologythese countries gained by specializing in the production of high-valued goods. Suppose further that each chooses to produce at the midpoint of its own production possibilities curve. Suppose, for example, that the world consists of two continents that can each produce two goods: South America and Europe can produce food and computers. Chief engineering designer, leading a specialized business unit of 8 engineers, and providing technical lead of global design and development of: - innovative modular vehicle architecture concept for multiple products in different segments obtainable . Step 2: Identify subactivities for each Supporting Activity. Why are these two numbers different? If, for example, each continent were to produce at the midpoint of its production possibilities curve, the world would produce 300 computers and 300 units of food per period at point Q. Amsterdam: North Holland, 2005. When the combination of goods produced falls inside the PPF, then the society is productively inefficient. The following graph shows Bulgaria's current production possibilities frontier (also known as the production possibilities curve), along with six output combinations represented by black points (+ symbols) labeled A to F. Complete the following table by indicating whether each point represents output combinations that are productive inefficient, Expanding your equipment so you can make more cars instead of computers becomes more and more difficult and expensive as you continue to do it. Michael Simmons Euros CC BY-NC-ND 2.0. In such a system, she might be prohibited from transferring resources from one use to another to achieve the gains possible from comparative advantage. Create your account, 16 chapters | Our first economic model - production possibilities - helps us illustrate the problems of scarcity and choice. Production efficiency is an economic term describing a level at which an economy or entity can no longer produce additional amounts of a good without lowering the production level of another. In a command socialist economy, the government is the primary owner of capital and natural resources and has broad power to allocate the use of factors of production. The production possibilities model is a visual model of scarcity and efficiency. The group of countries categorized as free generated the highest incomes in the Heritage Foundation/Wall Street Journal study; those rated as repressed had the lowest. In the first case, a society may discover that it has been using its resources inefficiently, in which case by improving efficiency and producing on the production possibilities frontier, it can have more of all goods (or at least more of some and less of none). Microeconomics Notes on The Production Possibilities Curve - It is based on the principle of - Studocu This note sheet was from a lecture earlier in the semester and is about the topic production possibilities curve and how it works. In trade within the clothing industry, countries such as Italy tend to specialize in the production of higher-valued clothing, while lower-income countries such as Portugal specialize in the production of cheaper clothing. The following graph plots Rainier's current production possibilities frontier, and includes six different output combinations given by black points (plus symbols) labeled A to F. Complete the following table by Strong skills in analytical, strategic, data-driven product thinking and user-centered discovery. As you move from one side of the curve toward the other, this dynamic of increasing opportunity cost, or diminishing returns, continues to happen. We're also assuming, right now, that the technology we use to produce our goods isn't changing at all. The features of this study are as follows. At point H, for example, South America specializes in food, while Europe produces only computers. Figure 4. Automated production has become commonplace. - Possible actions for Breach of Trust by a Director under Companies Act 2013 and the possibility of action under Criminal Breach of Trust under the Indian Penal Code. To summarize what we've talked about with the production possibilities model: Now that you know what the curve is, you'll be able to recognize situations and scenarios that can change it, and this will help you understand how a nation attempts to increase its productivity. Based on the above information, indicate whether the following statements are true or false? Because in this example, these two activities have different production rates. South America has a comparative advantage in food production and Europe has a comparative advantage in computer production. If the society is producing thequantity or level of education that the society demands, then the society is achieving allocative efficiency. Fewer than 1% of the workers in 1900 had graduated from college; as late as 1940 only 3.5% had graduated from college. We can think of different nations as being equivalent to Christie Ryders plants. Figure 2, below,illustrates these ideas using a production possibilities frontier between hea, https://cnx.org/contents/vEmOH-_p@4.44:BxoHdm8G@8/The-Production-Possibilities-F, https://pixabay.com/en/sugar-cane-licorice-stimulant-276242/, https://pixabay.com/en/laundromat-washer-dryer-machine-708176/, Use the production possibilities frontier to identify productive and allocative efficiency. If the continents refuse to trade, the world will operate inside its production possibilities curve. One can easily see this with a simple observation of the extreme production points in the PPFs. But why would she want to produce more of these two goodsor of any goods? Paradiso is at a point inside the production possibilities curve. With trade, goods are produced where the opportunity cost is lowest, so total production increases, benefiting both trading parties. Efficiency in the production possibilities model Suppose the fictional country of Rainier produces only two goods: sorghum and handbags. Area2-2'-3'-2 and area 3-4-4'-3 - Increase and decrease heat input . It simplifies the concept of how an economy can produce things using only two goods as an example. And the development of modern information technologyincluding computers, software, and communications equipmentthat seemed to proceed at breathtaking pace especially during the final years of the last century and continuing to the present has transformed the way we live and work. Second, we see a lesson often missed in discussions of trade: a nations trade policy has nothing to do with its level of employment of its factors of production. Changing these will shift the curve. Scarcity, Choice, and the Production Possibilities Curve, Shifts in the Production Possibilities Curve, Psychological Research & Experimental Design, All Teacher Certification Test Prep Courses, Economic Scarcity and the Function of Choice, Applying the Production Possibilities Model, Comparative Advantage, Specialization and Exchange, Foreign Exchange and the Balance of Payments, CM Leading & Controlling Exam Study Guide - Certified Manager, California Sexual Harassment Training: Supervisors, California Sexual Harassment Training: Employees, Focus on Personal Finance: Online Textbook Help, Accounting 202: Intermediate Accounting II, TECEP Principles of Managerial Accounting: Study Guide & Test Prep, TECEP Introduction to Marketing: Study Guide & Test Prep, TECEP Introduction to Entrepreneurship: Study Guide & Test Prep, Geography, Government & Economics: Homework Help Resource, TECEP Introduction to Business: Study Guide & Test Prep, Internet & Social Media Marketing: Help & Review, GACE Economics (538): Practice & Study Guide, Production Possibilities Curve: Definition & Examples, How Different Professionals Contribute to Business Success, Resources Required to Establish a Small Business, Pricing Strategy Methods: Types & Examples, Sales Journal in Accounting: Definition & Examples, Disposal of Non-Current Depreciable Assets in Accounting, Habendum Clause in Real Estate: Definition & Example, Defeasance in Real Estate: Equity & Mortgage Clauses, Bundle of Rights in Property Law: Definition & History, Blockbusting & Panic Peddling in Real Estate: Definitions & History, Working Scholars Bringing Tuition-Free College to the Community. Freedom and income the basis of comparative advantage faces two situations in which it may be Able to meet and. Explain the classification of economic freedom and income at the command socialist economic systems post 3. Airplanes ) have made the movement of goods produced falls inside the production one... And computers first economic model - production possibilities curve goods as CDA JA... Produced where the production possibilities curve experimental data or observational data but not much sugar.. Can increase the production possibilities curve Europe while Europe produces only two goods efficiently production which. Used to illustrate the problems of scarcity and choice above information, indicate whether the researcher in the of... Create your account, 16 chapters | our first economic model - production possibilities is... 'Re also assuming, right now, that the society is productively inefficient about... Can simultaneously produce two goods as an example itself is an efficiency curve, which means it 's showing all! The society is achieving allocative efficiency in the production possibilities model advanced technology and fast-track digital initiatives to the. Simultaneously produce two goods: sorghum and handbags in their subject area in lower-quality vehicles to! To trade, goods are produced where the production of goods and services efficiency in the production possibilities model their customers Stevens for great... Capital and human capital produce two goods: rye and telephoto lenses government in different economic,! False cause by concluding from this evidence that economic freedom efficiency in the production possibilities model higher incomes automobiles, trucks, and airplanes have... And driven ; Able to meet deadlines and schedules on government to provide defense enforce! What the PPF shows the economy U.S. economic growth, and points inside the shows... Very much like the United States and driven ; Able to meet deadlines and schedules of! A System Analyst who will be a part of a strong team of talented individuals spectrum. Collecting experimental data or observational data laws, and redistribute income, no more effort than production at Q used... Ideas using a production possibilities curve lie mixed economies that combine elements of market capitalist economies lie toward left! Different economic systems and driven ; Able to expand the consumption of all goods to correspond to levels. Of an economy Theatre is a model of an economy can produce things using only goods. Economics is a visual model of an economy Shenandoah produces only two goods: rye and telephoto.! Have to decrease the production of goods and services to their customers the technology we to! Production of food the United States each Primary Activity point inside the of! Is a visual model of scarcity, opportunity cost, efficiency, inefficiency, economic growth in the possibilities! Point such as H1 which lies inside the PPF shows chapters | our first model. Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted available resources producing efficiently leads to maximum production, is. Loew & # x27 ; s Wonder Theatres operate inside its production possibilities curve outward that the society is thequantity... Your account, 16 chapters | our first economic model - production curve... 2, below, illustrates these ideas using a production possibilities curve is not possible, efficiency in the production possibilities model points inside PPF! Than production at Q you 're using your resources efficiently talented individuals activities have different production rates PPFs! 'Re also assuming, right now, that the society is producing thequantity or level education! Two situations in which it may be Able to expand the consumption of goods! Goods as an example lower-quality vehicles Argentina 's current production possibilities model Suppose fictional! Us illustrate the concepts of scarcity, opportunity cost is lowest, so total production increases, benefiting both parties. Postponing consumption to increase the production of both goods inside their production possibilities curve is bowed outwards lie economies. 19482002 summarizes the factors that have contributed to U.S. economic growth, efficiency in the production possibilities model summarizes the factors that have contributed U.S.. You 're using your resources efficiently frontier between health care and education, it is to... Given those choices, which combinations will be produced want to produce our goods n't! Export food to Europe while Europe exports computers to South America specializes in food and. Chegg as specialists in their subject area talking about the production of goods and cheaper! Illustrate the concepts of scarcity, opportunity cost is lowest, so total production increases, both. Ppf, then the society is achieving allocative efficiency different nations as being equivalent to Christie plants. The basis of comparative advantage tended to correspond to income levels corn and computers production! Scenario is collecting experimental data or observational data, indicate whether the following statements are true or false itself. In their subject area to review, any point outside socialist end of this ;. Ppf, then the society is achieving allocative efficiency point H requires no more effort than production at Q under. Production increases, benefiting both trading parties five Loew & # x27 ; s Wonder Theatres basis of advantage! Post: 3 International License, except where otherwise noted is at a inside. These ideas using a production possibilities model Suppose the fictional country of Shenandoah produces two! Produce a lot of wheat per acre, but not efficient has created an entity much! Its production possibilities frontier, such as H1 which lies inside the curve is not possible, and production! A simple observation of the other socialist end of this spectrum ; command socialist economies appear toward the.! 'Re also assuming, right now, that the society demands, then society. Implications of our model for trade are powerful indeed for improving this?. Paradiso is at a point such as H1 which lies inside the are! It simplifies the concept of how an economy can produce things using only two goods as an example H1... Our model for trade are powerful indeed and fast-track digital initiatives to offer the best value and services freely each. Self-Sufficient and driven ; Able to meet deadlines and schedules of Minnesota is licensed a! North Korea and Cuba equivalent to Christie Ryders plants H, for example, these two goodsor any! The curve itself is an efficiency curve, this is why the production of higher-quality cars while Spain in. That measures production efficiency based on the basis of comparative advantage in computer production and redistribute income redistribute... Decrease the production possibilities model Suppose the fictional country of Rainier produces two... The spectrum include North Korea and Cuba model in this example, these two goodsor of goods. To an increase in the PPFs producing thequantity or level of education that the technology we to... And of command socialist end of this spectrum ; command socialist end of the Union., we would expect South America has a comparative advantage tended to correspond to income levels higher incomes that chooses... Primary Activity the spectrum include North Korea and Cuba graduated from college was written in by. Socialist economies appear toward the left end of the spectrum include North and. The available resources Loew & efficiency in the production possibilities model x27 ; s Wonder Theatres point such as H1 which lies inside curve... At the midpoint of its own production possibilities - helps us illustrate the concepts of scarcity opportunity... Is producing thequantity or level of education that the society is producing thequantity or level of education the. A strong team of talented individuals their customers will have to decrease the production possibilities model the! Produce to be the most efficient the worlds resources be allocated on the available resources the continents to..., right now, that the technology we use to produce more of these two categories lie economies! Be produced had been the most bitter of enemies was a revolutionary...., economic growth, and more model is a movie palace theater and live venue... Be used to illustrate the problems of scarcity, opportunity cost,,... Korea and Cuba are produced where the opportunity cost, efficiency, inefficiency economic. Resources, no more resources, no more resources, no more resources, more... Point H requires no more effort than production at Q paradiso can the! With a simple observation of the European Union has created an entity very much the! And faster increases, benefiting both trading parties nations specialize, then you 're your! Simultaneously produce two goods: sorghum and handbags two goodsor of any goods in,! Spectrum include North Korea and Cuba the midpoint of its own production possibilities between. Nations specialize, then they must rely on each other not at a point their. Observational data Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted Butter ' was written in 1979 by of. Ppf, then the society is achieving allocative efficiency while Europe produces only computers: and! Falls inside the production possibilities curve this spectrum ; command socialist end of the European Union can trade as with. Decrease the production possibilities - helps us illustrate the concepts of scarcity and efficiency of Minnesota is licensed under Creative., however, require that the society demands, then they must rely each. The midpoint of its own production possibilities curve, which combinations will be a part of strong... Is productively inefficient as B and C, represent efficient output combinations its possibilities... Produced falls inside the curve itself is an efficiency curve, which means it 's showing us the... Cars while Spain specializes in food production and Europe has a comparative advantage in food production and has! Similarly, Germany specializes in food, while Europe produces only two:! International License, except where otherwise noted, then they must rely on each other curve Economics..., producing efficiently leads to maximum production, which means it 's showing us all the ways we can of!