1.1.4 Production possibility fronters (PPF's)

What are production possibility fronters?

• Diagrams used to represent opportunity cost and what an individual/ economy can produce using its scarce resources (factors of production)

• It shows the maximum output combination of two goods that can be produced when all resources are fully efficiently used

What are some key features of PPF’s?

• they can also illustrate the production choices available to a whole economy 

• PPF’s give no indication of which combination of goods is desirable for an economy 

• Economic resources are not equally adaptable to all uses 

What is it called when the PPF is not a straight line? and what does this mean?

• If the PPF is not a straight and is concave then the opportunity cost will vary

What does a PPF with  straight line show?

• If the PPF is a straight line then the opportunity cost will be constant along the length of the line.

Explain the points on this diagram

A - Resources are used to produce only capital goods

B - Resources are used to produce only consumer goods

C & D - Represents full and efficient use of economic resources, as these points are on the curve. (however there is an opportunity cost)

E - Inefficient use of resources

F - Unattainable

Any point on the shows productive efficiency

Any point inside the curve shows inefficiency

Any point outside the curve is unobtainable

Any point on the curve has an opportunity costs

Explain the points on this diagram

An inwards shift shows economic decline

An outwards shift shows economic growth

Explain economic growth and how it is represented on a PPF

Economic growth occurs when there is an increase in the productive potential of an economy. This is demonstrated by an outwards shift in the curve. This means more consumer goods and more capital foods can now be produced using all the available resources. A shift is caused by an increase in the quantity or quality of resources.

Explain economic decline and how it is represented on a PPF

Economic decline occurs when there is any impact on an economy that reduces the quantity or quality of the available factors of production.

E.g the Japanese tsunami of 2011 devastated the production possibilities of Japan for many years, it shifted the PPF inwards and resulted in economic decline.