A production possibility frontier (PPF) shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed
Opportunity Cost and the PPF
PPF and Economic Efficiency
| Production Possibilities |
A production possibility frontier is used to illustrate the concepts of opportunity cost, trade-offs and also show the effects of economic growth.
Points within the curve show when a country’s resources are not being fully utilised
Combinations of the output of consumer and capital goods lying inside the PPF happen when there are unemployed resources or when resources are used inefficiently. We could increase total output by moving towards the PPF
Combinations that lie beyond the PPF are unattainable at the moment
A country would require an increase in factor resources, an increase in the productivity or an improvement in technology to reach this combination.
Trade between countries allows nations to consume beyond their own PPF.
Producing more of both goods would represent an improvement in welfare and a gain in what is called allocative efficiency.