Ultra-Simplification of Reality
2 different products (ice crean & shoes, potatoes & meat)
The curve signals the maximum amount of goods you can produce with the amount of resources (labor, capital, land, knowledge). The resources stay constant. Decision on how much of which I want to produce.
A great visualization of scarcity.
A point:
- on the curve: efficient
- inside the curve: not efficient
- outside the curve: unattainable
Shape of the curve: how much do I have to sacrifice in my current product, so that I can produce 1 more unit of the other product
- straight
- sacrifice stays constant (1:1)
- convex (outward)
- products profit from being produced together
- concave (inward)
- products do not profit from being produced together