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

  • a pareto efficient allocation of resources → all are employed

  • the maximum productive potential of the economy

  • possible production

• a position below the PPF curve represents

  • a pareto inefficient allocation of resources → some are unemployed

  • possible production

• a position above the PPF curve represents

  • unobtainable production → there is an insufficient supply of resources

PPF graphs represent opportunity costs

• the opportunity cost in capital goods is represented by

• the unit difference between the y-coordinate of the position and where the PPF curve meets the axis

• the opportunity cost in consumer goods is represented by

• the unit difference between the x-coordinate of the position and where the PPF curve meets the axis