a) PPF curves and resources

a) the use of production possibility frontiers to depict:

• the maximum productive potential of an economy

• opportunity cost (through marginal analysis)

• efficient or insufficient allocation of resources

• possible and unobtainable production

PPF graphs represent the allocation of scarce resources

• a position on the PPF curve represents

  • the maximum productive potential of an economy

  • an efficient allocation of resources because all are employed

  • possible production

• a position below the PPF curve represents

  • an inefficient allocation of resources because some are unemployed

  • possible production

• a position above the PPF curve represents

  • unobtainable production because of an insufficient unit of resources

PPF graphs represent opportunity costs

• the x-coordinate and the y-coordinate of a position represent the units of capital goods and consumer goods produced with the available resources

• the unit difference between the x-coordinate or y-coordinate of a position and x-coordinate or y-coordinate of where the PPF curve meets the axis represents the opportunity cost