The Production Possibilities Frontier (PPF) Model

Model

A simplified description of the real world used to understand and predict the relationship between variables.

Economic Model

A verbal description, numerical table, graph, or mathematical equation that describes what is expected to happen in reality.

Ceteris Paribus

Latin phrase meaning 'all other things remain unchanged,' used in economics to predict the effects of a variable change.

Production Possibilities Frontier (PPF)

An economic model showing relative scarcity, choice, and opportunity cost among different products.

PPF Assumptions

1) Maximum combinations of two products that can be produced, 2) A fixed level of resources is available, 3) Technology remains constant.

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen, illustrated in the PPF model.

Scarcity

The limited nature of society's resources, which necessitates making choices among alternatives.

Assumptions in Models

Simplifications made to create models because real life is too complex to represent accurately.

Point A in PPF

Represents the scenario where all resources are allocated to bread, resulting in the maximum production of bread with zero computers.

Point B in PPF

Represents the scenario where all resources are allocated to computers, resulting in the maximum production of computers with zero loaves of bread.

Variable Change in Models

Economic models assume only one variable changes at a time to allow for reasonable predictions.